<u who="nm1122"> now i've also circulated the <pause dur="0.2"/> arrangements for the seminars for this term <pause dur="0.3"/> as we agreed <pause dur="0.6"/> they're different from last term <pause dur="0.3"/> we're having them right at the end <pause dur="0.5"/> of the term <pause dur="0.9"/> # <pause dur="0.3"/> so you've got the topic there that # <pause dur="0.8"/> you # volunteered to do <pause dur="0.7"/> and <pause dur="0.2"/> <trunc>th</trunc> also those are room numbers <pause dur="0.5"/> where we're meeting <pause dur="0.9"/> # right at the end of term <pause dur="0.3"/> so we've got five seminars <pause dur="1.0"/> # <pause dur="0.5"/> we'll use the two hour slots for two seminars <pause dur="0.3"/> okay <pause dur="0.6"/> for each <pause dur="0.4"/> each hour <pause dur="0.7"/> plus <pause dur="0.2"/> one of the hours <pause dur="0.7"/> so you've a total of five hours there altogether </u><u who="sm1123" trans="latching"> yeah </u><pause dur="0.2"/> <u who="nm1122" trans="pause"> two-plus-two-plus-one <pause dur="1.3"/> everybody clear on what we're doing <pause dur="2.7"/> and the idea of that is that we get all the teaching out of the way <pause dur="0.3"/> and then <pause dur="0.3"/> there's no problem that the seminars are running ahead of the lectures <pause dur="1.0"/> okay <pause dur="3.1"/> # <pause dur="1.0"/> those of you the the visiting students <pause dur="0.4"/> # who <pause dur="0.3"/> # i think <pause dur="0.2"/> at least <pause dur="1.3"/> at least a couple of you <pause dur="0.2"/> got some rather low marks <pause dur="0.5"/> and i think the reason for that might be as i have discussed certainly with one of you <pause dur="0.4"/> that <pause dur="0.2"/> you were unclear of what was required of you <pause dur="0.4"/> # if

you want to <pause dur="0.3"/> pick a topic from last term and have another go at it <pause dur="0.5"/> # i'm i'm willing to accept that <pause dur="0.4"/> okay because you hopefully now have a better idea of what's required of you <pause dur="0.4"/> so if you want to choose a topic from last term <pause dur="0.4"/> # <pause dur="0.4"/> then by all means do so and i'll put that mark in rather than the one that you've been given because <pause dur="0.3"/> as i say i think there's a learning process going on <pause dur="0.4"/> of what's required <pause dur="0.9"/> okay <pause dur="2.7"/> right <pause dur="0.2"/> that only applies to visiting students the rest of you know exactly what's required <vocal desc="laughter" iterated="y" dur="1"/><pause dur="1.8"/> right <pause dur="16.9"/> oh <pause dur="0.3"/> it's another one of those <trunc>du</trunc> <pause dur="19.2"/> well today we're talking about globalization and liberalization you should all have a handout now <pause dur="1.1"/> # <pause dur="4.0"/> <gap reason="inaudible" extent="2 secs"/> </u> <u who="sm1124" trans="latching"> <gap reason="inaudible" extent="2 secs"/></u><pause dur="11.6"/><u who="nm1122" trans="pause"> have you covered globalization in in your International Relations course so are you doing that course <pause dur="1.1"/> okay <pause dur="1.4"/> well i'll # probably start off by asking you then what do you understand by globalization <pause dur="1.5"/> what's your how would you define it <pause dur="6.4"/> anyone <pause dur="4.5"/> don't be shy <pause dur="2.0"/> globalization you <trunc>n</trunc> if you were if somebody

asked you just in general terms <pause dur="0.4"/> what you understand by it and by that </u><pause dur="0.6"/> <u who="sf1125" trans="pause"> <trunc>glo</trunc> <pause dur="0.2"/> <trunc>globali</trunc> globalization is the phenomenon that took <pause dur="0.4"/> # <gap reason="inaudible" extent="6 secs"/> # <pause dur="0.4"/> # technology <pause dur="0.3"/> <gap reason="inaudible" extent="1 sec"/> # all around the world the trade # <pause dur="0.3"/> # <pause dur="0.2"/> the trade # <pause dur="0.3"/> # are <sic corr="liberalized">liberalizied</sic> # </u><u who="nm1122" trans="overlap"> mm </u><u who="sf1125" trans="latching"> and around <gap reason="inaudible" extent="1 sec"/> to # duty # in the market # # something </u><pause dur="0.7"/> <u who="nm1122" trans="pause"> okay right so we've got this <pause dur="0.2"/> huge expansion </u><u who="sf1125" trans="overlap"> yes </u><u who="nm1122" trans="overlap"> in the flow of information </u><u who="sf1125" trans="latching"> yeah </u><pause dur="0.4"/> <u who="nm1122" trans="pause"> # integrating countries </u><u who="sf1125" trans="overlap"> yes </u><u who="nm1122" trans="overlap"> and and markets together <pause dur="0.2"/> okay <pause dur="0.2"/> is it a new phenomena i mean is it something new <pause dur="0.4"/> or is it just an extension of what's been going on for a long time </u><pause dur="2.1"/><u who="sm1126" trans="pause"> it's an extension really </u><pause dur="0.2"/> <u who="nm1122" trans="pause"> right in what sense </u><pause dur="0.9"/><u who="sm1126" trans="pause"> # <pause dur="0.5"/> well <pause dur="0.5"/> countries avoid <pause dur="0.5"/> one since <pause dur="0.2"/> trading began globalization was really beginning <pause dur="0.4"/> beginning beginning through trading as countries become more interlinked <pause dur="0.3"/> in trading and then they <pause dur="0.6"/> then their economies become more interlinked because of that trading and how well their trade runs </u><pause dur="0.3"/> <u who="nm1122" trans="pause"> right </u><u who="sm1126" trans="overlap"> <gap reason="inaudible" extent="2 secs"/></u><pause dur="0.7"/> <u who="nm1122" trans="pause"> so international trade isn't as we've said before isn't just goods <pause dur="0.3"/> it also brings people in contact with each other and this exchange of information <pause dur="0.3"/> and the and the and the learning process that we've talked about <pause dur="0.4"/> so <pause dur="0.2"/> it's not new in that respect at all <pause dur="0.5"/> i don't know whether some of you saw there was a programme earlier on in the week <pause dur="0.5"/> # <pause dur="0.5"/> talking about <pause dur="0.3"/> # stone age temples in Malta anybody see it at all <pause dur="1.6"/> well one of the fascinating things there was that and this was five-thousand years ago <pause dur="0.7"/> and # we're talking

about Malta <pause dur="0.4"/> and the axes they were using used greenstone <pause dur="0.4"/> which can only have come from somewhere in the Alps <pause dur="0.2"/> towards the Austrian frontier <pause dur="0.6"/> # which is i guess in a straight line's about a thousand miles away <pause dur="0.4"/> and we're talking about five-thousand years ago there was obviously trade going on <pause dur="0.2"/> even then <pause dur="0.5"/> # so there's nothing new about trade <pause dur="0.3"/> in that sense globalization has a very long history <pause dur="0.7"/> # so the idea that it's something new and something spectacular that <pause dur="0.2"/> you know we've really <pause dur="0.4"/> # got to deal with now as a new exciting phenomena <pause dur="0.4"/> in that sense is is overplayed <pause dur="1.0"/> there's another view about globalization isn't there that <pause dur="0.4"/> # <pause dur="0.6"/> to quote a a theologian recently who was writing about globalization <pause dur="0.2"/> # <pause dur="0.2"/> talked about it ravaging the planet <pause dur="0.3"/> all right which is the other view about globalization <pause dur="0.3"/> particularly in the context of developing countries <pause dur="0.6"/> # the idea somehow that globalization <pause dur="0.5"/> and one of the key instruments of it which are multinational companies <pause dur="0.5"/> # is somehow a

vehicle for the exploitation of poor countries <pause dur="0.5"/> # and that they're worse off as a result of globalization <pause dur="1.1"/> and of course like any economic change <pause dur="0.7"/> they can be and there are gainers and and losers from from this process <pause dur="0.5"/> but our job is to take a more objective view <pause dur="0.6"/> # <pause dur="0.6"/> as i say stating that it's not something entirely new <pause dur="0.8"/> # the new part of it <pause dur="0.3"/> is the speed <pause dur="0.5"/> at which factor and product markets <pause dur="0.2"/> are being linked together <pause dur="0.5"/> that's the new part <pause dur="0.2"/> going back to what you were saying earlier <pause dur="0.3"/> about the speed of communication the speed and the flow of information <pause dur="0.6"/> # <pause dur="0.3"/> so the phenomena itself isn't isn't new it's just a continuation <pause dur="0.5"/> of traders for many thousands of years <pause dur="0.4"/> # engaged in the movement of people and the movement of goods <pause dur="0.6"/> # and today particularly services <pause dur="0.6"/> # but it's the speed at which i think the change is taking place <pause dur="1.0"/> # so the first question then is why <pause dur="0.5"/> the speed of change <pause dur="0.8"/> # in which factor and product markets have been much more closely integrated what are the forces

giving rise to that <pause dur="0.9"/> and secondly what are the role of multinational companies or <pause dur="0.2"/> transnational corporations as they're more generally known perhaps outside of Britain <pause dur="0.7"/> # what is their role in this process they're seen as being central to it <pause dur="0.5"/> # what is their role in the process <pause dur="0.3"/> and what <trunc>i</trunc> what are the costs and benefits <pause dur="0.4"/> of multinational companies <pause dur="0.4"/> # that are operating <pause dur="0.5"/> # in post-developing countries <pause dur="0.2"/> that's what we'll be looking at today <pause dur="3.2"/> okay <pause dur="0.4"/> i've given you <pause dur="0.3"/> <kinesic desc="turns on overhead projector showing transparency" iterated="n"/> there <pause dur="0.2"/> # <pause dur="0.4"/> my definition <pause dur="0.7"/> of globalization <pause dur="0.5"/> it's <pause dur="0.3"/> the <reading>rapid increase in the integration of world markets <pause dur="0.4"/> particularly for goods and services <pause dur="0.2"/> and financial markets</reading> <pause dur="1.0"/> # <pause dur="2.0"/> do you have another handout there please is there a spare one <pause dur="0.5"/> yeah <pause dur="11.9"/><event desc="passes handout to observer" iterated="n"/> # <pause dur="0.6"/> and i take this i mean i'd be interested in your views but i've listed some of the factors that seem to me to be important in driving the speed with which this is taking place <pause dur="0.4"/> disintegration of of # <pause dur="1.1"/> # of these markets but <pause dur="0.2"/> please tell me if you can

think of other <pause dur="0.5"/> important factors that i've missed out <pause dur="0.8"/> the first one seems to me <pause dur="0.2"/> to be falling transport and communication costs <pause dur="0.5"/> mm <pause dur="0.6"/> # <pause dur="0.6"/> i mean that <pause dur="0.2"/> fall in transport costs <pause dur="0.2"/> particularly fuelled the huge expansion of trade from eighteen-seventy onwards <pause dur="0.7"/> # <pause dur="0.2"/> combined of course with the Industrial Revolution <pause dur="0.3"/> spreading <pause dur="0.3"/> # in # Europe and North America <pause dur="0.7"/> but we've seen a further revolution <pause dur="0.3"/> in transport costs <pause dur="0.3"/> i've put there that sea freights <pause dur="0.3"/> have fallen by seventy per cent in real terms <pause dur="0.4"/> # between nineteen-eighty and nineteen-ninety-six so it's still going on <pause dur="0.5"/> this is the containerization revolution <pause dur="0.2"/> this is the huge increase in the size of ships <pause dur="0.4"/> # and with it all the mechanization that goes with that <pause dur="0.5"/> # in port handling facilities <pause dur="0.3"/> and the rest <pause dur="0.8"/> # so we've seen huge investment <pause dur="0.4"/> # in all this new technology in in in shipping and port handling <pause dur="0.5"/> which has greatly reduced <pause dur="0.3"/> cost <pause dur="1.0"/> maybe perhaps given some of the sea disasters that we've seen <pause dur="0.4"/> # perhaps the pressure on costs is a bit

too much <pause dur="0.5"/> # but that's another story <pause dur="0.7"/> and of course the <pause dur="0.2"/> huge fall in communications cost <pause dur="0.3"/> i don't know if anyone's got any <pause dur="0.7"/> numbers they could give me i couldn't find <pause dur="0.2"/> any easily about <pause dur="0.3"/> some number that might capture <pause dur="0.5"/> the huge fall in communication cost <pause dur="0.5"/> you know <pause dur="0.3"/> the <pause dur="0.4"/> <trunc>tr</trunc> the local cost of transmitting data back and forward say to America <pause dur="0.5"/> or the changes in the cost of telephone calls and <pause dur="0.2"/> so forth anyone any ideas on that <pause dur="1.1"/> read any articles no i couldn't come across anything <pause dur="0.3"/> off hand <pause dur="0.2"/> but it's quite obvious <pause dur="0.2"/> that there's been an enormous fall and that's continuing <pause dur="0.4"/> # with # all the mergers <pause dur="0.3"/> that we've seen in the and the and the new technology that keeps pouring in every year <pause dur="0.4"/> into the telecommunications industry <pause dur="0.6"/> # <pause dur="0.8"/> using satellites cables <pause dur="0.3"/> combined with computers and everything else <pause dur="0.5"/> so clearly that's <pause dur="0.2"/> must be a huge figure as well <pause dur="0.2"/> probably much much greater than the seventy per cent that i've given <pause dur="0.5"/> # over those # sixteen seventeen years <pause dur="0.8"/> so <pause dur="0.7"/> the fall in

transport and and communication costs seems to me to be one critical factor <pause dur="0.3"/> speeding up this integration of markets <pause dur="1.1"/> secondly changes in technology <pause dur="1.5"/> # <pause dur="1.0"/> in the sixties and seventies and on into the eighties <pause dur="0.4"/> # it was still an era <pause dur="0.2"/> of sort of a Henry Ford <pause dur="0.2"/> type <pause dur="0.3"/> # assembly operations <pause dur="0.4"/> where you had huge integrated plants <pause dur="0.4"/> # benefitting from economies of scale <pause dur="0.5"/> # <pause dur="0.3"/> in production <pause dur="0.2"/> mm <pause dur="0.7"/> # <pause dur="1.5"/> and the big change in technology <pause dur="0.3"/> # as much as i understand it which is not a lot <pause dur="0.5"/> # is that that has <pause dur="0.8"/> completely changed almost right across the board <pause dur="0.7"/> # where new technologies computer controlled technologies in in particular <pause dur="0.3"/> have enabled the whole scale of production <pause dur="0.4"/> now to be much smaller than it was before <pause dur="0.7"/> to put it more technically minimum efficient scale of production <pause dur="0.5"/> # <pause dur="0.3"/> all right the lowest point of the of the long run average cost curve <pause dur="0.6"/> # minimum efficient scale of production <pause dur="0.4"/> # is now at a much lower level of output <pause dur="0.2"/> than it was before <pause dur="1.1"/> now that must be good news for developing countries <pause dur="0.5"/> mm <pause dur="0.5"/>

because <pause dur="0.5"/> large-scale production <pause dur="1.2"/> inevitably <pause dur="0.3"/> centres production in the industrialized countries <pause dur="0.4"/> mm <pause dur="0.2"/> because <pause dur="0.4"/> they have the large markets <pause dur="0.2"/> they have access to capital <pause dur="0.2"/> and skilled labour <pause dur="0.2"/> and all the rest that is needed for these huge integrated plants <pause dur="0.6"/> and a small developing country <pause dur="0.3"/> finds it very difficult to break in <pause dur="0.5"/> to industries <pause dur="0.3"/> where there are large economies of scale in production <pause dur="0.9"/> # <pause dur="0.3"/> so this change in technology <pause dur="0.4"/> which is decreasing minimum efficient scale of production <pause dur="0.8"/> must be good news surely for developing countries <pause dur="0.4"/> moving in <pause dur="0.2"/> particularly into the new technologies and new products and new industries <pause dur="0.6"/> # <pause dur="2.9"/> # leaving perhaps the larger assembly operations which may still be subject to economies of scale <pause dur="0.5"/> to # to the industrialized countries <pause dur="1.9"/> so we've <reading>changes in technology decreasing <pause dur="0.3"/> the minimum efficient scale of production</reading> <pause dur="1.2"/> and <pause dur="0.8"/> secondly <reading>changes in technology greatly increasing the speed and capacity <pause dur="0.3"/> to process information</reading> <pause dur="0.8"/> okay it's the combination of computers <pause dur="0.5"/> and <pause dur="0.4"/>

# and information technology <pause dur="0.2"/> in in general <pause dur="0.2"/> satellites cables <pause dur="0.2"/> the rest <pause dur="0.6"/> # <pause dur="0.4"/> which enable us to transfer huge <pause dur="0.2"/> flows of information <pause dur="0.6"/> # highly technical information <pause dur="0.3"/> almost instantaneously <pause dur="0.3"/> from one side of the world to another <pause dur="1.3"/> # last year <pause dur="0.4"/> # i was # lucky enough to be in Mauritius <pause dur="0.6"/> # go there from time to time <pause dur="0.2"/> doing <pause dur="0.3"/> # some work for various organizations <pause dur="0.4"/> just happened to choose Mauritius <pause dur="0.4"/> # <vocal desc="laughter" n="ss" iterated="y" dur="1"/> <pause dur="0.8"/> and there the key sector indeed the only # manufacturing sector on the small island <pause dur="0.5"/> # is the clothing industry <pause dur="0.9"/> i mean in the <pause dur="0.5"/> to give you an idea of its expansion <pause dur="0.6"/> # in the late seventies there was hardly any clothing industry at all in Mauritius <pause dur="0.4"/> they were almost totally dependent on exports of sugar <pause dur="1.0"/> # sugar cane of course <pause dur="0.8"/> # <pause dur="0.4"/> # huge expansion <pause dur="0.2"/> in the population due to past growth of population <pause dur="0.5"/> so <pause dur="0.2"/>

# they had ooh <pause dur="0.2"/> twenty thirty per cent measured unemployment <pause dur="0.2"/> and of course as we know in developing countries <pause dur="0.5"/> # real unemployment is always quite a bit greater than measured unemployment <pause dur="0.8"/> but you know twenty thirty per cent measured unemployment <pause dur="0.4"/> much higher percentages of unemployment among young people 'cause there weren't any jobs for them <pause dur="1.0"/> and so the government <pause dur="0.4"/> # <pause dur="0.5"/> intervened into this situation <pause dur="0.4"/> and through various <pause dur="0.5"/> processes that we'll be talking about in a moment <pause dur="0.4"/> # attracted in foreign direct investment particularly <pause dur="0.4"/> # Hong Kong investment <pause dur="0.5"/> to set up a clothing industry <pause dur="1.2"/> and by the <pause dur="0.6"/> nineteen-eighty-six eighty-seven <pause dur="1.0"/> they had become the the world's third largest exporter <pause dur="0.5"/> of <pause dur="0.2"/> # woollen clothing <pause dur="0.9"/> # you know proud boast is there isn't a single sheep on the island <pause dur="0.6"/> # but all the wool comes from Australia <pause dur="0.2"/> # it's made up then into woollen garments <pause dur="0.3"/> and then it's exported particularly to Europe <pause dur="0.3"/> but also to North America <pause dur="1.3"/> # <pause dur="0.9"/> having started off with woollen

garments they also have # got into <pause dur="0.4"/> # cotton <pause dur="0.3"/> and into mixtures of cotton and artificial fibres and now it's a very thriving industry indeed it's the it's the main <pause dur="0.2"/> source of employment on the island <pause dur="0.4"/> and totally transformed the standard of living <pause dur="0.4"/> there in the matter of a decade <pause dur="0.7"/> so it's a a really a spectacular success story <pause dur="0.3"/> so far <pause dur="1.0"/> and going round some of these factories which of course were new factories <pause dur="0.4"/> # one of the points that was made to me <pause dur="0.4"/> was that <pause dur="0.5"/> # <pause dur="1.3"/> we only get the orders from Europe <pause dur="0.3"/> and some of these # factories were supplying fashion houses in in France in particular <pause dur="0.3"/> 'cause Mauritius has got a long history <pause dur="0.3"/> # of association with France it used to be a French colony <pause dur="0.4"/> before the # # Napoleonic Wars <pause dur="0.5"/> # <pause dur="1.3"/> and # the fashion houses in France <pause dur="0.6"/> only give the orders to the factories in in Mauritius <pause dur="0.2"/> at the very last minute <pause dur="0.4"/> you know <pause dur="0.3"/> # <pause dur="0.2"/> and then they'll say say it's sort of <pause dur="0.4"/> # # <trunc>s</trunc> spring clothing <pause dur="0.5"/> they'll get the orders round about September October <pause dur="0.4"/> and delivery's got to be

now January <pause dur="0.3"/> you know <pause dur="0.7"/> # which of course a very short time period for them <pause dur="0.4"/> # to respond to this <pause dur="0.7"/> and one of the key factors in their ability to respond to it <pause dur="0.4"/> is the ability to transfer <pause dur="0.4"/> the details of the order <pause dur="0.2"/> the exact you know precise patterns that are needed <pause dur="0.4"/> the precise specification of the clothing the different sizes the different styles <pause dur="0.3"/> measurements <pause dur="0.2"/> that are <trunc>a</trunc> all needed <pause dur="0.5"/> # <pause dur="0.2"/> including all the instructions for setting up <pause dur="0.5"/> the numerically controlled <pause dur="0.5"/> # # machinery <pause dur="0.3"/> which they then have computer controlled machinery <pause dur="0.4"/> which is then used <pause dur="0.2"/> to cut the cloth <pause dur="0.4"/> and then it goes off for finishing which is more a sort of a a a labour intensive operation <pause dur="0.5"/> # you know the stitching and the and various <pause dur="0.4"/> bits and pieces <pause dur="0.4"/> # that gives the style to the garment <pause dur="0.5"/> # <pause dur="0.2"/> but a key factor was this ability to transfer very very detailed information <pause dur="0.4"/> to and fro the factory <pause dur="0.3"/> and <pause dur="0.2"/> # the fashion houses <pause dur="0.5"/> # in the space of a second <pause dur="0.9"/> # and to transfer that information <pause dur="0.2"/> straight onto the new machinery <pause dur="0.6"/> as

well as the fact <pause dur="0.2"/> that minimum efficient scale of production <pause dur="0.3"/> was much smaller <pause dur="0.5"/> # <pause dur="0.4"/> than it had been maybe <pause dur="0.2"/> you know fifteen twenty years before <pause dur="0.5"/> # using the old machinery <pause dur="1.5"/> so that's an example then <pause dur="0.2"/> of a way in which <pause dur="0.2"/> we've had a decrease in minimum efficient scale of production combined with <pause dur="0.6"/> # this technological revolution <pause dur="0.4"/> in transmitting information <pause dur="0.5"/> # <pause dur="0.2"/> combining together <pause dur="0.3"/> to give a strong comparative advantage <pause dur="0.4"/> # to a developing country such as Mauritius <pause dur="2.9"/> the third element that seems to me important are <pause dur="0.2"/> # changes in the organization of production <pause dur="0.6"/> # at an international level <pause dur="1.2"/> i mean all of you lot have heard about international sourcing <pause dur="0.5"/> and i'm sure you've seen articles and <pause dur="0.4"/> maybe diagrams showing <pause dur="0.3"/> # <trunc>lo</trunc> <trunc>th</trunc> <pause dur="0.3"/> where components for a car today come from <pause dur="0.6"/> # the gear box may be made in in # <pause dur="0.2"/> # Brazil <pause dur="0.3"/> # the powertrain maybe comes from <pause dur="0.2"/> # Taiwan <pause dur="0.3"/> # the seats are maybe made in Italy <pause dur="0.3"/> # the electronics <pause dur="0.2"/> # come from Germany and so forth <pause dur="0.4"/> and then it's all brought together <pause dur="0.4"/> # <pause dur="0.5"/> in the

assembly plants <pause dur="0.3"/> which are generally near the markets <pause dur="0.4"/> either in Europe or North America or <trunc>i</trunc> or in Japan <pause dur="0.5"/> but worldwide sourcing of components <pause dur="0.5"/> # is now <pause dur="0.3"/> # the key element <pause dur="0.4"/> in maintaining the competitiveness <pause dur="0.4"/> # of a wide range of products of which the most spectacular i guess are cars <pause dur="0.4"/> but it applies now right across the board to electronic goods and a whole range of other products <pause dur="1.4"/> # <pause dur="0.3"/> so <pause dur="0.3"/> this change in the organization of production <pause dur="0.2"/> which again goes back to some of the points we made earlier <pause dur="0.6"/> # <pause dur="0.3"/> the fact that transportation costs are much lower now <pause dur="0.3"/> the fact that communication costs are lower <pause dur="0.3"/> and much more <pause dur="0.3"/> # speedy and sophisticated than they were before <pause dur="0.3"/> enable <pause dur="0.2"/> this international sourcing of production <pause dur="1.0"/> # so there's been this <pause dur="0.5"/> change laid particularly by Japan <pause dur="0.4"/> # in the organization of production <pause dur="1.6"/> and the other element to the change in the organization of production <pause dur="0.4"/> # is just in time production as it's called again <pause dur="0.4"/> # <pause dur="0.3"/> particularly <pause dur="0.2"/> introduced <pause dur="0.4"/> in # Japan although they

were actually using <pause dur="0.3"/> # American engineers who had first invented this <pause dur="0.2"/> but it was <pause dur="0.2"/> put into practice <pause dur="0.4"/> in a large way <pause dur="0.4"/> in Japan <pause dur="0.5"/> and just in time production <pause dur="0.2"/> is that all these components <pause dur="0.5"/> from all over the place come together <pause dur="0.7"/> just in time <pause dur="0.4"/> to be assembled into the final car <pause dur="0.5"/> # you don't keep stocks <pause dur="0.7"/> # or you keep very little in the way of stocks it's a sort of huge conveyor belt <pause dur="0.4"/> # stretching right across the world <pause dur="0.4"/> and coming just in time <pause dur="0.2"/> to be assembled together <pause dur="0.3"/> # for the final product whether it's a car <pause dur="0.2"/> or a video recorder <pause dur="0.3"/> # or a camera or C-D player or whatever it happens to be <pause dur="0.7"/> # <pause dur="0.4"/> and that again is increasingly <pause dur="0.3"/> the element in maintaining competitiveness and firms <pause dur="0.3"/> that are not able to organize production in that way <pause dur="0.6"/> # simply can't compete <pause dur="1.1"/> which is <pause dur="0.2"/> you can see we're beginning now to move in to <pause dur="0.5"/> the ways in which multinational companies <pause dur="0.6"/> then have a strong competitive edge <pause dur="0.4"/> # if not a dominant position <pause dur="0.7"/> in these world markets <pause dur="0.8"/> 'cause it's it's that sort of size that sort of worldwide

sourcing that sort of knowledge about <pause dur="0.4"/> where to buy goods <pause dur="0.3"/> how to combine them together <pause dur="0.5"/> # just in time <pause dur="0.8"/> # that multinationals have <pause dur="0.5"/> and which are very difficult for <pause dur="0.4"/> # <pause dur="1.2"/> # smaller national companies <pause dur="0.3"/> # <pause dur="0.4"/> to obtain <pause dur="3.1"/> # so <pause dur="1.1"/> we come then to the rise of transnational corporations <pause dur="0.5"/> # producing for a global market <pause dur="0.8"/> # they're the ones who can take advantage in particular <pause dur="0.6"/> of <pause dur="1.1"/> these various components that i've mentioned fall in transort communication costs changes in technology <pause dur="0.3"/> changes in the organization of production <pause dur="0.7"/> # <pause dur="0.4"/> and their competitive strength particularly lies <pause dur="0.4"/> in their ability to make use <pause dur="0.5"/> # <pause dur="0.6"/> of these fundamental changes <pause dur="0.6"/> # in techniques of production <pause dur="1.9"/> but of course all this would be impossible <pause dur="0.4"/> without <pause dur="0.8"/> # the liberalization <pause dur="0.5"/> of world trade <pause dur="0.4"/> in goods and services <pause dur="0.3"/> and in capital markets <pause dur="0.4"/> we've talked about that <pause dur="1.0"/> last term <pause dur="0.6"/> when we talked about in particular the Uruguay round <pause dur="0.5"/> of # multilateral trade negotiations <pause dur="1.0"/> # <pause dur="0.3"/> and the the <pause dur="0.4"/> the fact now that <pause dur="0.3"/> you know previously the W-T-O <pause dur="0.3"/> had

been regarded as the rich nations' club <pause dur="0.7"/> but now almost all developing countries <pause dur="0.3"/> are signing up or have signed up <pause dur="0.3"/> to the W-T-O to be members <pause dur="0.5"/> because the W-T-O <pause dur="0.2"/> is the central point <pause dur="0.5"/> for <pause dur="0.2"/> # the development <pause dur="0.7"/> of the liberalization of world trade <pause dur="0.7"/> if world trade isn't isn't liberalized <pause dur="0.5"/> then <pause dur="0.4"/> transport and communication costs can fall as much as they like <pause dur="0.5"/> we can have <pause dur="0.2"/> changes in techniques of production <pause dur="0.3"/> # going at a rapid pace but it's not going to lead to anything <pause dur="0.6"/> unless we also have <pause dur="0.4"/> the free movement <pause dur="0.4"/> of <pause dur="0.4"/> # factors of production <pause dur="0.5"/> and goods and services <pause dur="0.8"/> and so <pause dur="0.3"/> it all fits together one <pause dur="1.1"/> element reinforces the other <pause dur="0.2"/> one element drives the other <pause dur="0.7"/> # <pause dur="0.4"/> the need to be competitive <pause dur="0.5"/> # and utilize these <pause dur="0.3"/> # changes <pause dur="0.5"/> # in technology and changes in the organization of production <pause dur="0.4"/> bring pressure to bear on governments <pause dur="0.6"/> to <pause dur="0.2"/> # negotiate <pause dur="0.5"/> # trade agreeements <pause dur="0.2"/> freeing barriers to trade <pause dur="0.4"/> freeing barriers to movements of capital <pause dur="0.8"/> # <pause dur="0.7"/> and of course also freeing <pause dur="0.4"/> barriers to movement of

that <pause dur="0.3"/> far from giving something away when you lower your barriers to trade <pause dur="0.3"/> mm <pause dur="0.5"/> on the contrary <pause dur="0.3"/> # you gain by this and that's what the theory of comparative advantage tells you <pause dur="0.8"/> # <pause dur="0.2"/> that's not intuitively obvious to people <pause dur="0.5"/> that by lowering your barriers to trade you're not giving something away you're gaining <pause dur="0.3"/> you're raising the welfare of the country <pause dur="0.7"/> you're increasing your <pause dur="0.2"/> production possibilities you're increasing real income <pause dur="0.5"/> so lowering barriers to trade <pause dur="0.5"/> # unilaterally <pause dur="0.6"/> is a welfare increasing process for the country concerned <pause dur="0.3"/> they don't need to get something in exchange <pause dur="0.4"/> in order to benefit from trade <pause dur="1.0"/> and increasingly that message is also coming home <pause dur="0.7"/> # to countries <pause dur="1.4"/> who are unilaterally lowering their barriers to trade <pause dur="1.9"/> so at the bottom of that page there i've given you some <pause dur="0.2"/> # <pause dur="1.2"/> i mean you can have <pause dur="0.2"/> as many figures as you like here you can look at the growth of world trade you can look in particularly <pause dur="0.3"/> at the rising share <pause dur="0.3"/> of <pause dur="0.4"/> # <pause dur="0.3"/> trade <pause dur="0.4"/> in gross domestic product <pause dur="0.4"/> # for for rapidly

growing countries <pause dur="0.6"/> and what i've given you here is just some figures <pause dur="0.4"/> taken from the <pause dur="0.3"/> world development indicators <pause dur="0.4"/> remember that key source <pause dur="0.3"/> from the World Bank <pause dur="0.8"/> # <pause dur="0.3"/> showing trade in goods <pause dur="0.6"/> and remember it's just goods that are in here <pause dur="0.5"/> as a percentage of purchasing power parity <pause dur="0.4"/> all right P-P-P <pause dur="0.3"/> stands for purchasing power parity <pause dur="0.4"/> # of gross domestic product <pause dur="0.5"/> just comparing <pause dur="0.2"/> nineteen-eighty-seven with nineteen-ninety-seven <pause dur="1.0"/> and <pause dur="0.7"/> not surprisingly you see particularly for East Asia and the Pacific <pause dur="0.6"/> # there was just under ten per cent trade was in goods was just under <pause dur="0.4"/> ten per cent of G-D-P in nineteen-eighty-seven <pause dur="0.5"/> it was just under fifteen per cent <pause dur="0.3"/> in nineteen-ninety-seven <pause dur="0.6"/> now remember in nineteen-eighty-seven <pause dur="0.3"/> East Asia <pause dur="0.2"/> had already made huge progress <pause dur="0.3"/> with they they were already in the newly industrialized countries <pause dur="0.4"/> in nineteen-eighty-seven <pause dur="0.4"/> and if i'd gone back ten years before that <pause dur="0.3"/> you'd have seen an even more spectacular change <pause dur="0.7"/> so that's already <gap reason="inaudible due to background noise" extent="1 sec"/> started in nineteen-eighty-seven <pause dur="0.4"/>

already got the newly industrialized countries established in world trade <pause dur="0.3"/> and they're still increasing <pause dur="0.2"/> trade <pause dur="0.4"/> as a share <pause dur="0.2"/> of their gross domestic product <pause dur="0.6"/> # <pause dur="0.9"/> # <pause dur="0.5"/> at world level # you can see again a a a a ten per cent increase <pause dur="0.6"/> # Latin America now is the area <pause dur="0.3"/> where trade <pause dur="0.3"/> is <pause dur="0.3"/> the powerhouse <pause dur="0.4"/> for the growth of of these economies <pause dur="0.8"/> # trade both between countries <pause dur="0.2"/> the Mercasor countries <pause dur="0.4"/> in Latin America that we talked about <pause dur="0.5"/> # last term <pause dur="0.6"/> # <pause dur="0.2"/> rapidly increasing trade between themselves in which Brazil <pause dur="0.4"/> # of course given its size a central <pause dur="0.5"/> # country here <pause dur="0.6"/> # <pause dur="0.2"/> but also

trade with the rest of the world as well <pause dur="0.6"/> # and of course <pause dur="0.3"/> we've got the <pause dur="0.3"/> # North American Free Trade <pause dur="0.2"/> # Agreement <pause dur="0.3"/> between Mexico <pause dur="0.4"/> and the United States and Canada <pause dur="0.4"/> and <pause dur="0.2"/> the plan to <pause dur="0.4"/> # expand that <pause dur="0.4"/> into the Free Trade Area of the Americas <pause dur="0.4"/> mm <pause dur="0.5"/> # well that'll be <pause dur="0.3"/> something for the future <pause dur="0.4"/> # <pause dur="0.7"/> but that's the pattern which <pause dur="0.5"/> # <pause dur="0.8"/> # Latin America will almost certainly follow <pause dur="0.3"/> bringing into the Caribbean <pause dur="2.1"/> now of course that's just trading goods <pause dur="0.3"/> mm <pause dur="0.4"/> # what we <pause dur="0.3"/> tend to forget about because we're still rooted a bit in the past in our thinking <pause dur="0.2"/> and the textbooks are still <pause dur="0.3"/> rooted a bit in the past here as well <pause dur="0.6"/> trade in services <pause dur="0.6"/> has expanded <pause dur="0.3"/> to a much greater extent <pause dur="0.4"/> than trade in goods trade in goods has expanded rapidly <pause dur="0.3"/> but trade in services has exploded <pause dur="0.7"/> mm <pause dur="6.1"/> and again changes in technology <pause dur="0.7"/> do enable developing countries to take part in that <pause dur="0.8"/> for example <pause dur="0.3"/> the # <pause dur="0.5"/> # <pause dur="0.2"/> software <pause dur="0.2"/> for <pause dur="0.3"/> # <pause dur="0.7"/> that was written <pause dur="0.3"/> to produce the <pause dur="0.3"/> # timetable for the London

Underground <pause dur="0.3"/> was written in India <pause dur="0.5"/> mm <pause dur="0.8"/> # <pause dur="0.6"/> many an increasing number of # large <pause dur="0.5"/> # companies today <pause dur="0.5"/> # <pause dur="0.5"/> transfer all their routine data processing and data inputting <pause dur="0.5"/> # out to developing countries <pause dur="0.2"/> out to India out to the Caribbean <pause dur="0.2"/> out to countries in the Latin America <pause dur="0.5"/> # so the raw data is just exported en masse <pause dur="0.2"/> again using <pause dur="0.4"/> the revolution in communications and computer technology <pause dur="0.4"/> # and then it's inputted and processed <pause dur="0.3"/> and produced in whatever form the companies require <pause dur="0.2"/> and transferred <pause dur="0.2"/> back <pause dur="0.2"/> to the # head office or distributed out to the various <pause dur="0.3"/> # branches <pause dur="0.3"/> of these large corporations throughout the world <pause dur="0.6"/> # and labour's cheap of course in developing countries so you've got a pool of <pause dur="0.3"/> of cheap <pause dur="0.2"/> but skilled and educated labour <pause dur="0.4"/> # <pause dur="0.3"/> and so rather than do the task <pause dur="0.5"/> in the industrialized countries where labour is is is # <pause dur="0.3"/> is not plentiful it's scarce it's expensive <pause dur="0.3"/> you transfer it out to developing countries <pause dur="0.6"/> but there's all sorts of areas of growth of services <pause dur="0.5"/> # again using new

technology <pause dur="0.5"/> # for which developing countries <pause dur="0.4"/> are increasingly <pause dur="0.2"/> involved <pause dur="1.0"/> another rapid area of course are financial services <pause dur="0.6"/> # <pause dur="0.3"/> which again can involve <pause dur="0.3"/> a limited number of of developing countries <pause dur="0.5"/> and then of course we've got tourism <pause dur="0.4"/> and international tourism <pause dur="0.4"/> is # a rapidly growing <pause dur="0.5"/> # source of income and employment <pause dur="1.0"/> particularly for small developing countries <pause dur="0.3"/> # <trunc>quan</trunc> quantitatively it's going to be <pause dur="0.3"/> not terribly important for a country like India or China <pause dur="0.3"/> although they've got a rapidly expanding <pause dur="0.4"/> # <pause dur="0.2"/> tourism market <pause dur="0.8"/> but for smaller countries <pause dur="0.2"/> # <pause dur="0.2"/> in <pause dur="0.5"/> # say like <pause dur="0.4"/> # Sri Lanka <pause dur="0.3"/> in # South Asia <pause dur="0.4"/> or other countries in South-East Asia <pause dur="0.4"/> or one of the Caribbean countries <pause dur="0.4"/> # or Pacific countries <pause dur="0.3"/> you know tiny island countries like Tonga and Fiji <pause dur="0.5"/> tourism <pause dur="0.4"/> is becoming the most important source of employment <pause dur="0.5"/> # and a major source of export earnings <pause dur="1.5"/> so <pause dur="0.2"/> don't forget the service sector in here we tend to think of goods all the time we tend to think of comparative advantage <pause dur="0.4"/> in terms of production of goods <pause dur="0.3"/> #

for final consumption <pause dur="0.6"/> but apply the same theories apply the same thinking <pause dur="0.3"/> to the service sector <pause dur="0.7"/> and that's <pause dur="0.4"/> <trunc>re</trunc> # that's expanding even more rapidly <pause dur="0.4"/> than trade in goods <pause dur="3.2"/> well those are the sort of <pause dur="0.5"/> things that seem to me to be driving <pause dur="0.2"/> this globalization process <pause dur="1.1"/> and as a <pause dur="0.2"/> <trunc>a</trunc> as a result of that <pause dur="0.3"/> particularly giving <pause dur="0.3"/> # a competitive strength to big international multinational companies <pause dur="0.6"/> and i want to move onto those in a moment <pause dur="0.7"/> but <pause dur="0.6"/> i'll stop there for a moment <pause dur="0.4"/> any questions you have for me or <pause dur="0.3"/> points that i've missed out that you think are also driving this <pause dur="0.5"/> globalization process <pause dur="16.3"/> okay well if anything <pause dur="1.0"/> comes to mind while you're thinking about it let me know and chip in particularly when we're talking about multinationals <pause dur="0.6"/> # <pause dur="0.2"/> which we're now <pause dur="0.5"/><kinesic desc="changes transparency" iterated="y" dur="4"/> # concerned with <pause dur="4.2"/> i keep calling them multinationals but i # <pause dur="0.3"/> because <pause dur="1.6"/> that's what i've <pause dur="0.2"/> called them in the past <pause dur="0.7"/> but i gather that the standard term today <pause dur="0.2"/> is now <pause dur="0.5"/> transnationals the American term <pause dur="0.8"/> and indeed we have the U-N

Centre on Transnational Corporation <pause dur="0.6"/> so i # that's why i stuck to that term <pause dur="0.4"/> don't like it transnational <pause dur="0.4"/> # sounds a bit clumsy to me <pause dur="0.4"/> prefer multinational but <pause dur="0.6"/> never mind <pause dur="0.6"/> # we'll stick to that <pause dur="0.2"/> now first of all let's <pause dur="0.4"/> and those of you who who've done <pause dur="0.3"/> # courses in international trade might well have covered this so apologies <pause dur="0.4"/> if i'm # covering something some of you already know and indeed chip in <pause dur="0.5"/> if <pause dur="0.7"/> there's something i've missed out or <pause dur="0.4"/> not quite made clear <pause dur="0.9"/> # but the theory of multinationals <pause dur="0.8"/> transnational corporations <pause dur="0.5"/> # <pause dur="1.5"/><vocal desc="cough" iterated="n"/><pause dur="0.3"/> is really based on on three factors so you <pause dur="0.4"/> <trunc>r</trunc> really the the <pause dur="0.2"/> the the the the the <pause dur="1.2"/> # emphasizing that the growth <pause dur="0.4"/> and indeed the dominance of transnational corporations <pause dur="0.5"/> is the outcome of three interacting circumstances <pause dur="0.7"/> # <pause dur="0.3"/> the ownership advantage <pause dur="0.4"/> of these <pause dur="0.2"/> firms <pause dur="0.6"/> their locational advantage and their internalization advantages <pause dur="0.9"/> and i'd like to go through each of those briefly <pause dur="0.4"/> in in turn <pause dur="1.9"/> # <pause dur="1.5"/> the ownership advantage of multinationals transnationals <pause dur="0.7"/> # <pause dur="0.9"/> is

that they they own assets <pause dur="1.6"/> which can be profitably exploited <pause dur="0.6"/> on a comparatively large scale <pause dur="0.5"/> all right that's the first characteristic <pause dur="1.0"/> that they own assets <pause dur="0.5"/> which can be profitably exploited <pause dur="0.5"/> on a comparatively large scale <pause dur="5.6"/> and the sort of assets we're talking about <pause dur="0.5"/> are <pause dur="0.2"/> particularly things like intellectual property <pause dur="0.5"/> okay Microsoft <pause dur="0.8"/> # <pause dur="0.5"/> classic example perhaps of <pause dur="0.4"/> # <pause dur="0.2"/> # <pause dur="0.2"/> of intellectual property <pause dur="1.2"/> but it applies right across the board <pause dur="0.4"/> # it's <trunc>i</trunc> it's the knowledge <pause dur="0.5"/> of <pause dur="0.6"/> # <pause dur="1.1"/> you know what to produce <pause dur="0.4"/> how to produce it <pause dur="0.8"/> where to sell it <pause dur="0.7"/> how to market it <pause dur="0.6"/> that sort of knowledge okay that proprietary knowledge <pause dur="0.6"/> # <pause dur="1.3"/> which is a key component <pause dur="1.2"/> but also that that knowledge <pause dur="0.3"/> can be exploited on a large scale i mean if it's a highly specialized piece of knowledge <pause dur="0.4"/> you're not going to get a transnational corporation out of that <pause dur="0.3"/> mm <pause dur="0.5"/> so it's not only that they have this <pause dur="0.2"/> proprietary knowledge <pause dur="0.4"/> but also that the knowledge can be applied <pause dur="0.3"/> on a relatively large scale <pause dur="2.3"/> # <pause dur="0.7"/> other sort of <pause dur="0.3"/> # ownership advantages # would

also be <pause dur="0.2"/> # organization and managerial skills <pause dur="1.1"/> which again in a sense develop from <pause dur="0.5"/> the size of the organization because the organization gets bigger <pause dur="0.6"/> # it has to rearrange the way in which it it it carries out its functions <pause dur="0.6"/> # <pause dur="0.2"/> some will be efficient at doing that and some won't <pause dur="0.5"/> # <pause dur="0.6"/> the usual Darwinian selection <pause dur="0.3"/> that we believe in in economics <pause dur="0.5"/> # <pause dur="0.2"/> those that can't organize themselves on a large scale go under <pause dur="0.4"/> so the ones that we actually see surviving are the ones that have adapted their organizational structures <pause dur="0.6"/> to <pause dur="0.2"/> be able to expand on a large scale <pause dur="1.2"/> # <pause dur="0.4"/> and that of course <pause dur="0.3"/> # brings a cumulative advantage to them <pause dur="0.6"/> over <pause dur="0.2"/> smaller firms <pause dur="0.3"/> or national firms <pause dur="0.3"/> which don't have those organizational and managerial skills <pause dur="0.8"/> equally of course it's presumably why <pause dur="0.2"/> you'll probably <trunc>app</trunc> at least some of you apply to <pause dur="0.4"/> these sort of firms <pause dur="0.4"/> # looking for a job <pause dur="0.5"/> # because they're the ones with the sophisticated training programmes graduate training programmes <pause dur="0.5"/> and you're then inculcated into <pause dur="0.4"/>

# the organizational and managerial <pause dur="0.2"/> structures and norms <pause dur="0.4"/> and methods of # # and and practices <pause dur="0.2"/> of <pause dur="0.4"/> these huge <pause dur="0.4"/> # transnational corporations <pause dur="0.7"/> # so they build on these skills by investing heavily in people <pause dur="0.7"/> # that's why they're good organizations to join <pause dur="0.4"/> but it's essential for their survival that they do so <pause dur="0.7"/> # if they don't heavily invest in people <pause dur="0.5"/> and in organizational skills <pause dur="0.6"/> then the sheer size of the organization <pause dur="0.2"/> will be its downfall <pause dur="2.0"/> # <pause dur="1.0"/> and they also because they're producing on a comparatively large scale <pause dur="0.4"/> # they also develop sophisticated marketing networks <pause dur="1.2"/> # and again <pause dur="0.3"/> this is # a key ownership advantage <pause dur="1.9"/> locational advantage <pause dur="1.0"/> # is simply stating that it's more profitable <pause dur="0.6"/> # <pause dur="1.1"/> to produce whatever it is the goods or service <pause dur="0.6"/> # <pause dur="0.3"/> <vocal desc="cough" iterated="n"/> by utilizing assets <pause dur="0.4"/> # <pause dur="0.7"/> in different countries <pause dur="2.0"/> so that production takes place <pause dur="0.2"/> utilizing assets in different countries <pause dur="0.4"/> rather than just the home country <pause dur="0.5"/> of <pause dur="0.5"/> # the corporation <pause dur="1.0"/> mm <pause dur="1.4"/> so again this is another characteristic <pause dur="0.2"/> the there's this <pause dur="0.5"/>

# locational advantage <pause dur="0.8"/> # <pause dur="0.4"/> which means that <pause dur="0.7"/> # they can <pause dur="1.3"/> use these assets <pause dur="0.2"/> particularly these intangible assets their <pause dur="0.2"/> their ownership advantage and produce the goods or service <pause dur="0.5"/> utilizing <pause dur="0.4"/> # the factors of production <pause dur="0.2"/> in a number of countries and not just the home country <pause dur="0.4"/> of the of the multinational <pause dur="1.1"/> # <pause dur="0.7"/> otherwise you simply produce the product <pause dur="0.2"/> in your home country and then you simply export the good or service <pause dur="0.2"/> you wouldn't be <pause dur="0.2"/> a transnational corporation <pause dur="0.4"/> you would simply be a large company exporting <pause dur="0.6"/> we could talk about international production here <pause dur="0.5"/> so another key characteristics of the goods and services <pause dur="0.5"/> are that they can be more competitively produced <pause dur="0.6"/> # utilizing factors of production <pause dur="0.4"/> at an international level <pause dur="1.7"/> and the third element there which is <pause dur="0.5"/> the one that's perhaps most difficult for people to grasp <pause dur="0.4"/> is the internalization advantage <pause dur="3.2"/> # <pause dur="1.5"/> by internalization <pause dur="0.6"/> we mean <pause dur="0.5"/> overcoming market failure <pause dur="1.7"/> # in in open markets <pause dur="0.7"/> or regular markets if you like <pause dur="0.9"/> by developing

internal markets <pause dur="0.3"/> within the transnational corporation <pause dur="1.5"/> now the clearest example of market failure <pause dur="0.4"/> and the need for an internal market therefore <pause dur="0.3"/> is the market for knowledge <pause dur="0.8"/> mm <pause dur="1.0"/> firms guard their ownership advantages their their knowledge <pause dur="0.7"/> # <pause dur="1.0"/> # <pause dur="0.3"/> fiercely <pause dur="1.2"/> if you join one of these firms <pause dur="0.2"/> the <trunc>fir</trunc> one of the first things you'll do have to do <pause dur="0.4"/> is to sign the declaration <pause dur="0.5"/> which will list all sorts of things <pause dur="0.3"/> which you must not do <pause dur="0.6"/> # <pause dur="0.4"/> # and which you are will will be sued if you transfer knowledge outside of the firm <pause dur="0.5"/> # <pause dur="0.2"/> even without making it available to their competitors <pause dur="0.6"/> but you you <pause dur="0.4"/> # you must have a clear desk <pause dur="0.4"/> # you must lock away <pause dur="0.3"/> # your various pieces of information in certain places <pause dur="0.5"/> # <pause dur="0.4"/> it is absolutely forbidden <pause dur="0.2"/> to copy down onto floppy disks <shift feature="voice" new="laugh"/>sources <shift feature="voice" new="normal"/>of information <pause dur="0.4"/> # and so on and they <pause dur="0.2"/> # they they police <pause dur="0.3"/> their computer systems <pause dur="0.4"/> to make sure that people <pause dur="0.2"/> are not misusing this knowledge 'cause knowledge is the most precious commodity that they have <pause dur="0.5"/> in

their competitive advantage <pause dur="1.0"/> and the problem for them is <pause dur="0.3"/> on the one hand for the firm or for the enterprise <pause dur="0.5"/> to work efficiently <pause dur="0.7"/> knowledge has to be freely available <pause dur="0.9"/> # within the corporation itself <pause dur="0.5"/> otherwise <pause dur="0.3"/> you're not exploiting <pause dur="0.4"/> your <pause dur="0.3"/> # <pause dur="0.3"/> # your <pause dur="0.3"/> # competitive advantage whether it's in computer systems or <pause dur="0.3"/> in producing cars or whatever it happens to be <pause dur="1.0"/> # on the other hand you want to guard this knowledge <pause dur="0.2"/> so that it doesn't <pause dur="0.2"/> # it's not available to your competitors <pause dur="1.4"/> also <pause dur="0.6"/> knowledge is a is a difficult product once you try and sell it <pause dur="0.8"/> hence all the complicated <pause dur="0.4"/> # legislation that we have <pause dur="0.4"/> on intellectual property rights <pause dur="0.5"/> remember again last term we talked about <pause dur="0.4"/> the W-T-O agreement <pause dur="0.4"/> on trade related <pause dur="0.2"/> intellectual property rights <pause dur="0.5"/> and that was <pause dur="0.2"/> fuelled particularly <pause dur="0.3"/> by American companies <pause dur="0.5"/> who were very concerned <pause dur="0.3"/> about firms throughout the world <pause dur="0.5"/> # ripping off their knowledge <pause dur="0.4"/> # for software or for anything that happened to be <pause dur="0.2"/> # you know i talked about in Taiwan it's <pause dur="0.2"/> politely

called <pause dur="0.3"/> # reverse engineering you get hold of <pause dur="0.2"/> a Phillips video recorder <pause dur="0.2"/> and you take it to pieces and say oh that's how they made it <pause dur="0.4"/> # fine you know we can we can do better than that and sell it for half the price <pause dur="0.5"/> # <pause dur="0.6"/> #

it is is no longer competitive <pause dur="0.9"/> so <pause dur="0.3"/> knowledge is your <trunc>o</trunc> often your most <trunc>comp</trunc> # precious <pause dur="0.2"/> competitive advantage <pause dur="1.1"/> but you can't sell that knowledge easily <pause dur="0.5"/> 'cause as soon as you put it into the <pause dur="0.3"/> <trunc>i</trunc> into the open market <pause dur="0.3"/> it becomes a public good <pause dur="0.6"/> mm becomes a a free good <pause dur="0.6"/> # anybody can rip it off <pause dur="0.5"/> # anybody can use this reverse engineering to see how you've built the product <pause dur="0.4"/> # what components you've used and how you've designed the circuitry and so forth <pause dur="0.8"/> # <pause dur="0.4"/> and you can't <pause dur="0.3"/> # <pause dur="0.7"/> adequately guard that knowledge <pause dur="0.5"/> through the law although you obviously as i say in the in in in the TRIPS aggreement <pause dur="0.5"/> # <pause dur="0.3"/> we've <pause dur="0.2"/> been trying to do that <pause dur="0.8"/> so knowledge is this very fragile commodity <pause dur="0.7"/> and

what multinational companies transnational corporations do <pause dur="0.6"/> is to make this knowledge freely available within the company <pause dur="0.8"/> # <pause dur="0.3"/> but guard it against going outside <pause dur="1.5"/> so there <trunc>g</trunc> got market failure then <pause dur="0.2"/> and the market for knowledge <pause dur="0.4"/> you can't <pause dur="0.3"/> the firm cannot obtain <pause dur="0.4"/> # the <pause dur="0.5"/> # value <pause dur="0.3"/> of its knowledge by selling it in markets <pause dur="0.7"/> mm because it can't make it exclusive <pause dur="0.8"/> # <pause dur="0.4"/> so if it keeps it internal within the firm <pause dur="0.5"/> but then <pause dur="0.2"/> maximizes <pause dur="0.4"/> # the knowledge advantage that it has <pause dur="0.4"/> # <pause dur="0.8"/> by # <trunc>ha</trunc> <pause dur="0.2"/> by developing internal markets <pause dur="0.6"/> so that <pause dur="0.2"/> there is parts of the organization of access to the knowledge they require <pause dur="0.4"/> but don't have access to the knowledge <pause dur="0.2"/> that they don't need <pause dur="0.3"/> mm and you control <pause dur="0.2"/> the dissemination of knowledge in that way <pause dur="0.7"/> # to <pause dur="0.4"/> # guard against <pause dur="0.3"/> it # going to your competitors <pause dur="0.4"/> but at the same time <pause dur="0.2"/> exploiting it <pause dur="0.2"/> in an optimal manner <pause dur="0.3"/> # within the <pause dur="0.4"/> <trunc>i</trunc> in <pause dur="0.2"/> in the company <pause dur="2.7"/> now this knowledge of course it can't <trunc>simp</trunc> # isn't simply in terms of patent and # # various other proprietary knowledge like

that <pause dur="0.4"/> it can also be knowledge about markets <pause dur="0.3"/> it can be knowledge about <pause dur="0.2"/> # production processes <pause dur="0.5"/> # knowledge <pause dur="0.4"/> obtained <pause dur="0.2"/> by the very operations by the international operations <pause dur="0.4"/> of the multinational company <pause dur="1.1"/> # <pause dur="1.3"/> and so again <pause dur="0.2"/> making that freely available <pause dur="0.6"/> # pooling together <pause dur="0.7"/> the knowledge of gain by the worldwide operations of the multinational <pause dur="0.3"/> itself builds up its competitive advantage <pause dur="0.6"/> so <pause dur="0.8"/> the competitive advantage then of transnationals <pause dur="1.0"/> obtained from their ownership <pause dur="0.3"/> locational <pause dur="0.4"/> and internalization advantages <pause dur="2.0"/> # and combining those together <pause dur="2.2"/><kinesic desc="reveals covered part of transparency" iterated="n"/> now this bit there the <pause dur="0.7"/> personal and potential benefits <pause dur="0.4"/> of multinationals transnationals to <pause dur="0.3"/> # developing countries <pause dur="2.0"/> the most obvious one <pause dur="0.2"/> is that you get capital and the foreign direct investment comes in <pause dur="0.5"/> # <pause dur="0.7"/> so # the developing country gets capital <pause dur="0.6"/> but these days of international <pause dur="0.3"/> capital movements <pause dur="0.5"/> that's not terribly important <pause dur="0.9"/> because if you've got a worthwhile investment project even in a developing country where there's

higher risk <pause dur="0.7"/> # <pause dur="1.0"/> you still shouldn't have too much difficulty in financing that project <pause dur="0.3"/> mm <pause dur="0.4"/> there are sophisticated international banks <pause dur="0.5"/> who are <trunc>s</trunc> scouring the world <pause dur="0.4"/> looking for <pause dur="0.3"/> # good rates of return for their for their clients' money <pause dur="1.0"/> # if you're a small developing country there might be a problem <pause dur="0.3"/> if you're just too small for them to be bothered with <pause dur="0.4"/> you know anything less than a few billion dollars worth of investment <shift feature="voice" new="laugh"/> they might <shift feature="voice" new="normal"/> not be interested in <pause dur="0.5"/> # but on the whole <pause dur="0.4"/> # <pause dur="0.2"/> we've got sufficiently sophisticated international <pause dur="0.2"/> capital markets these days <pause dur="0.5"/> for <pause dur="0.3"/> investment <pause dur="0.5"/> # and the flow of investment <pause dur="0.4"/> not to be terribly important <pause dur="0.4"/> # as a benefit from multinationals <pause dur="2.0"/> obviously it is still important but <pause dur="1.1"/> one of the key points unfortunately about the flow of foreign direct investment is that it's heavily concentrated <pause dur="0.5"/> in a relatively few countries few developing or transitional economy <pause dur="0.2"/> and i've given you some figures there <pause dur="0.4"/> # <pause dur="1.0"/> # <pause dur="0.6"/> though in in recent

years <pause dur="0.4"/> investment been particularly in the huge economies of China <pause dur="0.2"/> also in in in in Brazil <pause dur="0.4"/> and then <pause dur="0.3"/> # Mexico <pause dur="0.2"/> principally because of NAFTA <pause dur="0.2"/> the North Atlantic <pause dur="0.5"/> # the # # # North American Free Trade Agreement <pause dur="0.4"/> and <pause dur="0.2"/> # the transitional economy <pause dur="0.6"/> and <pause dur="0.8"/> the <pause dur="0.2"/> new NIX <pause dur="0.4"/> # Malaysia and Thailand <pause dur="2.6"/> conversely the whole of sub-Saharan Africa <pause dur="0.4"/> # only accounts for five per cent <pause dur="0.3"/> of foreign direct investment <pause dur="0.8"/> # <pause dur="3.0"/> but the second point i'll make <pause dur="0.7"/> is that <pause dur="0.5"/> as i say <pause dur="0.7"/> if you've got a worthwhile investment project you should be able to borrow in international capital markets <pause dur="0.7"/> and the involvement of T-N-Cs <pause dur="0.6"/> isn't just confined to foreign direct investment <pause dur="0.7"/> today there's a whole sophisticated <pause dur="0.2"/> forms <pause dur="0.3"/> of involvement <pause dur="0.6"/> which may or may not involve <pause dur="0.3"/> foreign direct investment <pause dur="0.5"/> licensing agreements <pause dur="0.2"/> joint ventures management contracts <pause dur="0.3"/> turnkey projects <pause dur="0.2"/> all sorts of ways <pause dur="0.5"/> in which <pause dur="0.4"/> # multinational transnational corporations <pause dur="0.4"/> can be involved <pause dur="0.4"/> in the production of a good or service <pause dur="0.2"/> in a developing country <pause dur="0.4"/> it

doesn't just have to be a wholly owned <pause dur="0.3"/> # affiliate <pause dur="0.3"/> of the of the multinational <pause dur="0.3"/> and indeed increasingly today <pause dur="0.4"/> # <pause dur="0.2"/> transnational corporations <pause dur="0.3"/> are <pause dur="0.3"/> quite wary about having wholly owned affiliates operating in developing countries <pause dur="0.5"/> # they prefer joint ventures <pause dur="0.3"/> quite often governments in developing countries <pause dur="0.4"/> # require them to have joint ventures <pause dur="0.5"/> but in any case it it minimizes their exposure to risk <pause dur="0.6"/> by having a joint venture <pause dur="0.2"/> or by having a licensing agreement <pause dur="0.3"/> or the rest <pause dur="0.3"/> rather than <pause dur="0.3"/> putting large sums of capital in <pause dur="0.7"/> # as i say there's international capital markets to deal with that side of things <pause dur="2.8"/> so it's perhaps the second form of involvement then the the sort of non-equity forms of involvement which are increasingly important today in the activities <pause dur="0.4"/> of <pause dur="0.2"/> # transnationals <pause dur="1.9"/> the second benefit is increased employment <pause dur="0.6"/> # particularly for women in the manufacturing sector <pause dur="0.6"/> if you look at the <pause dur="0.3"/> opening chapter of your textbook <pause dur="0.4"/> there's # a little story in there <pause dur="0.3"/> about # <pause dur="0.6"/> a # <pause dur="1.2"/> a

young girl leaves school <pause dur="0.3"/> # i think it's in Thailand is it <pause dur="0.5"/> # any anybody read it <pause dur="0.7"/> # <pause dur="0.5"/> going into an electronics factory or is Malaysia no i think it's Malaysia yes anyway <pause dur="0.2"/> going into an electronics factory and so forth <pause dur="0.6"/> because <pause dur="0.5"/> very often the first stage anyway of <pause dur="0.2"/> a transnational's involvement in a developing country <pause dur="0.5"/> will be in simple assembly operations <pause dur="1.1"/> and # <pause dur="1.2"/> that's particularly provides a source of employment for women <pause dur="0.3"/> rather than men <pause dur="0.6"/> # so that's why i've said it's increased employment <pause dur="0.3"/> especially for women <pause dur="0.3"/> in the manufacturing sector <pause dur="0.5"/> same's true of <pause dur="0.2"/> i talked about data processing and data entering and so forth <pause dur="0.5"/> # again <pause dur="0.4"/> that very often <pause dur="0.3"/> # <pause dur="0.3"/> produced employment for women <pause dur="0.4"/> in in developing countries <pause dur="0.9"/> and that's fortunate as well because given the labour markets in developing countries <pause dur="0.5"/> there is a a particularly in the urban sector <pause dur="0.3"/> not so much the rural sector but in the urban sector <pause dur="0.5"/> there is very limited employment for women <pause dur="0.3"/> # in the manufacturing sector in the in the local

manufacturing sector <pause dur="0.5"/> in developing countries <pause dur="0.4"/> so <pause dur="0.6"/> providing employment for women may be particularly valuable <pause dur="0.4"/> # <pause dur="0.5"/> in these countries <pause dur="1.3"/> third that it obviously increases real income <pause dur="1.4"/> remember <pause dur="0.3"/> it's the multiplier effect here <pause dur="0.3"/> okay it's not simply the direct employment <pause dur="0.5"/> say of women <pause dur="0.4"/> in an electronics assembly <pause dur="0.3"/> # plant or whatever it happens to be <pause dur="0.4"/> it's not simply that direct employment <pause dur="0.4"/> there's also the multiplier effects of that <pause dur="0.5"/> you remember that <pause dur="0.4"/> the multiplier effects can be quite substantial <pause dur="0.6"/> # because it's a labour intensive operation <pause dur="1.1"/> # <pause dur="0.2"/> then <pause dur="0.7"/> the women employed in that factory will then go out they'll have a high propensity to consume <pause dur="0.2"/> all right given very low levels of income <pause dur="0.5"/> so a high proportion of their wages will be spent <pause dur="0.5"/> mostly on local <pause dur="0.4"/> # goods and services <pause dur="0.3"/> mm <pause dur="0.2"/> and that'll then lead to multiplier <pause dur="0.2"/> increases <pause dur="0.3"/> # in output <pause dur="0.5"/> employment <pause dur="0.5"/> and real incomes <pause dur="0.5"/> throughout the economy <pause dur="0.5"/> mm <pause dur="2.9"/> # fourthly <pause dur="0.5"/> # <pause dur="0.5"/> depending on the activity of multinationals and i'll come on to that <pause dur="0.2"/> # later on <pause dur="0.7"/> # there'd

be a decrease in prices too <pause dur="0.9"/> # i mean if it's export platform <pause dur="0.4"/> # assembly operations <pause dur="0.4"/> well there won't be much effect <pause dur="0.3"/> that way <pause dur="0.8"/> but particularly if it's import substituting <pause dur="0.7"/> # activity by a multinational which you particularly find <pause dur="0.5"/> # in larger economies <pause dur="0.3"/> say like India <pause dur="0.2"/> or China <pause dur="0.4"/> but also in # Latin America <pause dur="0.8"/> if it's import substituting <pause dur="0.5"/> # <pause dur="0.2"/> # activity by the multinational <pause dur="0.7"/> then <pause dur="0.5"/> they can be providing <pause dur="0.8"/> a higher quality product <pause dur="0.2"/> at a lower price <pause dur="0.7"/> than # domestic manufacturers <pause dur="0.8"/> or maybe <pause dur="0.3"/> # in terms of the imported article <pause dur="1.7"/> # simply because <pause dur="1.4"/> the transnational corporation <pause dur="0.2"/> is more efficient <pause dur="0.8"/> # <pause dur="0.5"/> has lower cost of production <pause dur="0.6"/> # <pause dur="0.9"/> and also because <pause dur="0.2"/> its very presence <pause dur="0.6"/> may well bring in competition <pause dur="0.4"/> into the domestic market <pause dur="0.6"/> where previously <pause dur="0.5"/> the market was a monopolistic or or or oligopolistic <pause dur="0.2"/> structure <pause dur="1.7"/> # <pause dur="0.5"/> particularly for smaller developing countries <pause dur="0.6"/> # local manufacturers may well be <pause dur="0.6"/> you know fixing prices between themselves <pause dur="0.5"/> or there may be open or there may be tacit collusion <pause dur="0.5"/> # because it's a relatively small

market <pause dur="0.4"/> and a foreign company coming in which is not part of that process <pause dur="0.7"/> can produce more competition <pause dur="0.6"/> # and can force lower prices <pause dur="0.8"/> the general effect of opening up an economy <pause dur="0.4"/> to trade <pause dur="13.8"/><kinesic desc="changes transparency" iterated="y" dur="13"/> further advantage which <pause dur="0.6"/> a gain which <pause dur="0.3"/> transnationals can bring is increasing <pause dur="0.2"/> government revenues <pause dur="5.0"/> this perhaps is particularly indeed perhaps the only gain <pause dur="0.8"/> that you get from transnationals' operation <pause dur="0.5"/> in say <pause dur="0.2"/> # mineral extraction you know mining operations and the rest <pause dur="0.5"/> i mean the employment effects are going to be small <pause dur="0.4"/> # <pause dur="0.3"/> very little linkage into the local economy <pause dur="0.4"/> so principally the only benefit <pause dur="0.3"/> which the government gets from it <pause dur="0.4"/> is <pause dur="0.3"/> # probably a licence agreement to operate <pause dur="0.3"/> # extracting the copper the bauxite the uranium whatever it happens to be <pause dur="0.4"/> plus <pause dur="0.2"/> # <pause dur="0.5"/> # payments <pause dur="0.3"/> are based on on production <pause dur="1.3"/> so <pause dur="0.4"/> source of government revenue <unclear>in those cases important</unclear> <pause dur="0.3"/> while manufacturing processes <pause dur="0.7"/> well <pause dur="0.3"/> government revenue might depend might be increased <pause dur="0.4"/> particularly if

it's import substituting <pause dur="0.4"/> # manufacturing <pause dur="0.6"/> # selling products in the local market <pause dur="0.3"/> and again <pause dur="0.4"/> there's # <pause dur="0.4"/> the there's usually some sort of local purchase tax or value added tax <pause dur="0.5"/> # that'll generate government revenues in that way <pause dur="0.9"/> but also go back to what we said earlier <pause dur="0.5"/> that <pause dur="0.7"/> the on the on the multiplier effects <pause dur="0.6"/> of transnationals <pause dur="0.3"/> increasing <pause dur="0.4"/> output increasing employment <pause dur="0.5"/> # <pause dur="0.3"/> and that'll increase the base <pause dur="0.5"/> for <pause dur="0.4"/> # # government revenues <pause dur="6.5"/> also creating important external economies spillover effects <pause dur="1.5"/> # <pause dur="1.4"/> now these are potentially <pause dur="0.4"/> the most important effects of all <pause dur="0.7"/> well we say you can borrow capital <pause dur="0.3"/> on international markets <pause dur="0.4"/> or you can attract equity investment on international capital markets <pause dur="0.8"/> fairly easily these days <pause dur="0.7"/> # <pause dur="0.6"/> generates a bit of employment increased government revenues and and so on <pause dur="0.9"/> but the key advantage to a developing country <pause dur="1.3"/> of the operation of a transnational <pause dur="0.4"/> # <pause dur="0.4"/> in its economy <pause dur="0.5"/> is to be able to tap in <pause dur="0.8"/> to these competitive advantages of the multinational <pause dur="0.5"/> mm <pause dur="0.5"/> to tap into their

knowledge <pause dur="1.6"/> about <pause dur="0.4"/> production processes <pause dur="0.8"/> about how to organize production <pause dur="2.0"/> about how to design the product <pause dur="0.7"/> how to market the product <pause dur="1.9"/> how to keep financial controls <pause dur="0.9"/> # and so on all the thousand-and-one <pause dur="0.2"/> factors <pause dur="0.6"/> which together <pause dur="0.5"/> are essential if you're going to compete <pause dur="0.4"/> especially in world markets <pause dur="1.6"/> and remember that most developing countries are small economies <pause dur="1.3"/> so <pause dur="0.3"/> they've got to go into world markets at a

fairly early stage in their development <pause dur="0.6"/> remember we said it's sort of catch twenty-two really <pause dur="0.6"/> # <pause dur="0.5"/> you know they've got small economies <pause dur="0.4"/> and so <pause dur="0.2"/> they have to <pause dur="0.3"/> move into world markets at an early stage in their development <pause dur="0.6"/> # <pause dur="0.6"/> but if they're able to compete in world markets <pause dur="0.4"/> they wouldn't be underdeveloped countries <pause dur="0.2"/> all right <pause dur="0.5"/> so how do you crack the catch twenty-two problem <pause dur="0.6"/> # <pause dur="0.5"/> part of the answer to that <pause dur="0.3"/> is <pause dur="0.6"/> attract <pause dur="0.2"/> transnational corporations <pause dur="0.3"/> and then tap into their knowledge <pause dur="1.9"/> of course it depends crucially <pause dur="0.6"/> on the extent to which this knowledge <pause dur="0.2"/> that i've mentioned about <pause dur="0.4"/> production processes and organizing production and management and marketing <pause dur="0.6"/> it crucially depends on the extent to which <pause dur="0.3"/> that knowledge disseminates <pause dur="0.7"/> into the local economy <pause dur="1.3"/> # if it's a mining operation <pause dur="0.2"/> there's not going to be much dissemination of useful knowledge <pause dur="0.2"/> mm <pause dur="0.7"/> manufacturing process potentially <pause dur="0.5"/> # it can <pause dur="0.2"/> # be very useful <pause dur="1.1"/> go back to the case of Mauritius <pause dur="0.6"/> that i was talking about on on the clothing

industry there <pause dur="0.6"/> it's an interesting very interesting <pause dur="0.4"/> # case study <pause dur="1.5"/> because it started off with <pause dur="0.4"/> # Hong Kong investment <pause dur="0.6"/> on pretty simple <pause dur="0.4"/> you know <pause dur="0.3"/> C-M-T cut make and trim operations they're called <pause dur="0.5"/> so the cloth comes in <pause dur="0.3"/> it's simply cut up sewn up into cheap garments and sold <pause dur="0.3"/> # throughout the world <pause dur="0.8"/> # <pause dur="1.4"/> but then it developed into more sophisticated operations <pause dur="0.3"/> mm <pause dur="0.9"/> # <pause dur="0.2"/> particularly brought in <pause dur="0.3"/> by <pause dur="0.3"/> # European investment <pause dur="0.3"/> into the clothing industry <pause dur="1.4"/> and of course <pause dur="0.8"/> the the wise guys there <pause dur="0.5"/> worked for <pause dur="0.2"/> the <pause dur="0.5"/> # foreign companies <pause dur="0.9"/> they saw how things were done <pause dur="0.3"/> mm they saw they learned quickly <pause dur="0.5"/> # <pause dur="0.3"/> # about overseas markets <pause dur="0.4"/> # about the <trunc>n</trunc> how to organize production <pause dur="0.5"/> in particular <pause dur="0.5"/> how to <pause dur="0.2"/> deal with these very short lead times <pause dur="0.5"/> between the buyer saying this is what we want for the spring sales <pause dur="0.4"/> and being able to produce it you know three or four months later <pause dur="0.3"/> or even shorter lead time than that <pause dur="0.7"/> # <pause dur="0.5"/> how to keep financial controls <pause dur="0.4"/> # and so on <pause dur="0.3"/> okay <pause dur="0.3"/> # and they would indeed some of the families that i talked to

there <pause dur="0.4"/> # had specifically the father would send the sons out you know you're going to work for that French company there and you'll work for that Hong Kong <trunc>f</trunc> company <pause dur="0.5"/> # # you'll go into the accounts department <pause dur="0.2"/> you'll become a production engineer <pause dur="0.3"/> you'll go into marketing i mean it was it was it's as far-sighted as that <pause dur="0.6"/> you learn then from their operations <pause dur="0.6"/> # <pause dur="0.3"/> and then we set up our own factory <pause dur="1.2"/> # not only then do we find in Mauritius <pause dur="0.5"/> that more than half the factories are now owned by Mauritian nationals <pause dur="0.6"/> but they've also bought out <pause dur="0.5"/> # the original <pause dur="0.3"/> # investors the original Hong Kong investors <pause dur="0.3"/> # and American investors in in particular <pause dur="0.4"/> # so they started off working for the company <pause dur="0.2"/> they ended up owning the company <pause dur="0.2"/> mm <pause dur="0.2"/> but even without that <pause dur="0.7"/> a key factor in this dissemination of knowledge <pause dur="0.3"/> is simply you work for the company you learn how things are done <pause dur="0.3"/> and then off you go and do it yourself <pause dur="0.6"/> # <pause dur="0.3"/> and <pause dur="0.5"/> # because you have these credentials <pause dur="0.4"/> you don't have <trunc>m</trunc> much problems <pause dur="0.3"/> # in borrowing

money <pause dur="0.2"/> # to set up the factory either you've worked for a a a big name <pause dur="0.5"/> # you've probably established your contacts as well <pause dur="0.2"/> throughout the industry <pause dur="0.2"/> so you'll know you're a known quantity in the industry particularly on the marketing side <pause dur="0.6"/> # and they've been extremely successful in doing that <pause dur="0.8"/> # so as i say so now <pause dur="0.3"/> more than half the industry is owned by Mauritian nationals <pause dur="0.4"/> well <pause dur="0.2"/> at the beginning <pause dur="0.5"/> you know <pause dur="0.3"/> my first sort of fifteen years ago <pause dur="0.4"/> # <pause dur="0.3"/> it was <pause dur="0.2"/> # almost exclusively <pause dur="0.4"/> # foreign owned <pause dur="1.6"/> so this dissemination of knowledge then <pause dur="0.6"/> # <pause dur="0.2"/> not only by people working for the companies <pause dur="0.6"/> but also by the transnational sourcing <pause dur="0.5"/> # its inputs <pause dur="0.2"/> from local firms <pause dur="0.2"/> mm <pause dur="0.5"/> if you're going to source your inputs from local firms <pause dur="0.4"/> you've got to tell the local firms what you want <pause dur="0.2"/> mm <pause dur="0.4"/> what your design requirements are <pause dur="0.5"/> you'll probably also <pause dur="0.4"/> # put in engineers into the firm <pause dur="0.4"/> # in order to tell them how to do it <pause dur="0.4"/> mm <pause dur="0.7"/> one of the key factors which has greatly increased the productivity of the British motor industry

for example <pause dur="0.7"/> has been the fact of Japanese companies <pause dur="0.3"/> coming in <pause dur="0.3"/> # <trunc>w</trunc> <trunc>w</trunc> <trunc>w</trunc> whether it's Honda <pause dur="0.2"/> # working on in Swindon <pause dur="0.3"/> or Nissan working up in Newcastle on <pause dur="0.2"/> # both on greenfield sites <pause dur="0.5"/> # <pause dur="0.4"/> they were then sourcing they had to source <pause dur="0.4"/> # <pause dur="0.2"/> # within the European Union <pause dur="0.2"/> in order to meet rules of origins <pause dur="0.2"/> which is <pause dur="0.2"/> another area <pause dur="0.5"/> that a a key element in their ability to export in Europe <pause dur="0.3"/> there had to be a European content in production <pause dur="0.4"/> otherwise they wouldn't have been allowed to establish themselves <pause dur="0.3"/> so they had to source from Europe <pause dur="0.8"/> they particularly sourced from the U-K <pause dur="0.7"/> but then they looked at some of the U-K suppliers and held their <pause dur="0.5"/> hands up in horror <pause dur="0.3"/> at their working practices and the technology that we're using and the skills of their labour force <pause dur="0.3"/> and so they brought in <pause dur="0.2"/> a whole lot of engineers from from from Japan <pause dur="0.5"/> # and put them into these <pause dur="0.3"/> # suppliers <pause dur="0.3"/> to bring them up <pause dur="0.2"/> to best practice <pause dur="0.4"/> mm <pause dur="0.5"/> and that's what you find in developing countries as well <pause dur="0.6"/> # <pause dur="0.3"/> that <pause dur="0.4"/> # they will

increasingly source their supplies <pause dur="0.4"/> # from the local economy 'cause it's profitable to do so <pause dur="0.3"/> all right it's efficient to do so <pause dur="0.6"/> particularly using <pause dur="0.4"/> as i say modern technologies and just in time production <pause dur="0.7"/> # you increasingly source <pause dur="0.4"/> from the local economy <pause dur="0.5"/> but you've got to train <pause dur="0.3"/> the suppliers <pause dur="0.2"/> especially in a developing country <pause dur="0.4"/> how to meet your requirements <pause dur="0.4"/> in terms of quality <pause dur="0.3"/> and design and everything else <pause dur="0.9"/> # so you disseminate knowledge in that way inevitably by <pause dur="0.2"/> by by doing that <pause dur="1.0"/> so that's probably the most important potential benefit <pause dur="0.4"/> potential benefit <pause dur="0.7"/> from a multinational <pause dur="2.4"/> # <pause dur="1.9"/> but of course <pause dur="0.3"/> there's the potential cost of multinationals <pause dur="1.0"/> # <pause dur="0.2"/> and i'm sure <pause dur="0.3"/> most of you are probably familiar with those <pause dur="0.2"/> people tend to dwell on the cost <pause dur="0.6"/> i don't know of of multinationals and <pause dur="0.5"/> perhaps sometimes forgetting the potential benefits <pause dur="0.7"/> they can achieve a dominant position because they're Coca-cola <pause dur="0.2"/> all right <pause dur="0.4"/> # they go in <pause dur="0.2"/> to <pause dur="0.2"/> India whatever it was <pause dur="0.2"/> and they wipe out <pause dur="0.3"/> all the <pause dur="0.3"/> # local <pause dur="0.2"/> # producers of soft drinks <pause dur="0.2"/> by

their sheer marketing <pause dur="0.3"/> # name their image <pause dur="0.3"/> # their efficiency <pause dur="0.2"/> in production their efficiency in marketing <pause dur="0.2"/> their financial strains <pause dur="0.5"/> # <pause dur="0.3"/> so they can quickly get a monopoly position <pause dur="0.2"/> particularly perhaps in a developing country <pause dur="1.6"/> # and then of course there's the the appalling examples <pause dur="0.4"/> of # companies like Nestlé <pause dur="0.4"/> # <pause dur="0.2"/> that you know <pause dur="0.3"/> # pushing <pause dur="0.2"/> powdered milk <pause dur="0.4"/> in developing countries you know saying it's better than mothers' milk <pause dur="0.5"/> # <pause dur="0.5"/> which is untrue <pause dur="0.4"/> # and also <pause dur="0.4"/> # <pause dur="0.3"/> ignoring the fact <pause dur="0.4"/> that the # parents may not be able to get access to clean drinking water <pause dur="0.2"/> to combine with the powdered milk <pause dur="0.4"/> and so <pause dur="0.3"/> you have # create serious illnesses and you know so there's <pause dur="0.3"/> there's various notorious examples <pause dur="0.5"/> # of # <pause dur="0.4"/> the aggressive activities of multinationals <pause dur="0.5"/> # but even without those notorious sort of Nestlé type examples <pause dur="0.4"/> there's also <pause dur="0.3"/> this simply they point that in a small market <pause dur="1.0"/> transnational <pause dur="0.4"/> particularly import substituting one <pause dur="0.4"/> can achieve a monopoly position <pause dur="0.6"/> rather than just

stimulate <pause dur="0.3"/> # local competition <pause dur="0.5"/> # in the way that we described before <pause dur="1.7"/> at least for the second point they can crowd out <pause dur="0.6"/> # <pause dur="1.5"/> actual potential local producers <pause dur="0.3"/> again by their <pause dur="0.2"/> sheer size <pause dur="1.0"/> simply based on their reputation <pause dur="0.2"/> and their marketing power <pause dur="0.4"/> and their overall efficiency <pause dur="0.9"/> and they may even <pause dur="0.2"/> you know <pause dur="0.3"/> squeeze out local producers in the way that <pause dur="0.4"/> # Branson or Virgin Airlines <pause dur="0.3"/> claimed that British Airways did <pause dur="0.3"/> # by simply you now keep selling at a loss <shift feature="voice" new="laugh"/>all right <pause dur="0.3"/> <shift feature="voice" new="normal"/> # because they can afford to do so they had the financial muscle to do so <pause dur="0.5"/> so you can squeeze out the opposition by selling the goods at knock-down prices <pause dur="0.6"/> # then once the opposition's gone <pause dur="0.2"/> then you bang up the price <pause dur="0.5"/> # <pause dur="2.9"/> the third point <pause dur="0.2"/> # <pause dur="0.3"/> profits <pause dur="0.6"/> # may well be <pause dur="0.2"/> # repatriated and not reinvested in the economy <pause dur="0.3"/> i mean obviously the propensity of a <pause dur="0.2"/> of a transnational corporation <pause dur="0.5"/> to invest in the local economy <pause dur="0.6"/> will be lower <pause dur="0.4"/> than <pause dur="0.3"/> the propensity to invest <pause dur="0.5"/> # of a <pause dur="0.3"/> a wholly owned <pause dur="0.6"/> # local company <pause dur="1.1"/> # <pause dur="0.2"/>

because <pause dur="0.6"/> they have all these investment opportunities throughout the world <pause dur="0.4"/> and they're maximizing the global profits <pause dur="0.4"/> of <pause dur="0.3"/> # the corporation <pause dur="1.8"/> so propensity to reinvest <pause dur="0.5"/> # may well be lower <pause dur="1.6"/> fourthly inappropriate products and technologies <pause dur="0.8"/> # inappropriate products or like the dried milk case of Nestlé is the most as i say <pause dur="0.4"/> a notorious example <pause dur="0.6"/> but it <pause dur="0.6"/> may not be <pause dur="0.2"/> quite as as notorious as that <pause dur="0.3"/> # it may simply be <pause dur="0.3"/> that <pause dur="0.2"/> # <pause dur="1.8"/> given their marketing power <pause dur="0.3"/> they're able to <pause dur="0.4"/> you know distort <pause dur="0.5"/> patterns of taste and preferences <pause dur="0.4"/> towards <pause dur="0.3"/> sophisticated goods <pause dur="0.6"/> # <pause dur="0.2"/> whereas the more approriate product <pause dur="0.2"/> may be <pause dur="0.5"/> a cheaper <pause dur="0.4"/> less sophisticated good <pause dur="0.9"/> but not with all the all the design features <pause dur="0.3"/> that they have <pause dur="0.7"/> # i guess the selling of maybe trainers and things like that in developing countries <pause dur="0.4"/> # at <pause dur="0.4"/> well they're for local people very high prices but for high prices for us as well in this country <pause dur="0.4"/> it's # <pause dur="0.3"/> but # particularly in in in developing countries you know the kids have got to have those trainers <pause dur="0.4"/> #

there are <pause dur="0.3"/> # much cheaper local substitutes for <trunc>f</trunc> of <pause dur="0.2"/> of of footwear <pause dur="0.6"/> but the <pause dur="0.3"/> # marketing power of Nike or whatever it happens to be is such <pause dur="0.4"/> that they can distort tastes and preferences in that way <pause dur="1.0"/> inappropriate technologies <pause dur="1.2"/> that's a tricky one <pause dur="0.4"/> # <pause dur="2.3"/> the <pause dur="1.3"/> first example of that first source of that <pause dur="0.3"/> might be <pause dur="0.4"/> that <pause dur="0.4"/> the transnational comes in <pause dur="0.7"/> # <pause dur="0.4"/> with European or American trained engineers <pause dur="0.7"/> and best practice for them <pause dur="0.5"/> is <pause dur="0.5"/> the highly sophisticated <pause dur="0.5"/> capital intensive <pause dur="0.3"/> skill intensive operation <pause dur="0.5"/> mm <pause dur="0.9"/> # and <pause dur="0.2"/> given their training given their education <pause dur="0.2"/> back in Europe or North America <pause dur="0.9"/> that's the only technique they know that's the best technique <pause dur="0.5"/> as far as they're concerned <pause dur="0.5"/> they think in <pause dur="0.2"/> # as engineers <pause dur="0.2"/> mm <pause dur="2.0"/> whereas as economists <pause dur="0.2"/> we would think in terms of <pause dur="0.5"/> the least <pause dur="0.3"/> cost <pause dur="0.3"/> method of production <pause dur="1.8"/> and the least cost method of production <pause dur="0.7"/> may well be a more labour intensive technology <pause dur="0.3"/> in a developing country <pause dur="0.4"/> mm <pause dur="0.6"/> not only because <pause dur="0.3"/> labour costs are much lower <pause dur="0.4"/> than labour costs in the

industrialized countries <pause dur="0.8"/> but also the sophisticated piece of machinery <pause dur="0.5"/> will need pretty sophisticated maintenance <pause dur="0.4"/> mm <pause dur="0.9"/> which you can sustain <pause dur="0.4"/> in a in an industrialized country <pause dur="0.6"/> because you have all the skilled engineers to keep it going <pause dur="0.4"/> and you have the specialist <pause dur="0.5"/> # firms <pause dur="0.2"/> who can come in and fix whatever's wrong with it <pause dur="0.3"/> and supply the components <pause dur="0.3"/> and off you go <pause dur="0.3"/> # within an hour or so <pause dur="1.1"/> in a developing country when a sophisticated piece of important machinery breaks down <pause dur="0.8"/> well it may be months before the blasted thing can be can be got going again <pause dur="0.6"/> 'cause the part's got to be imported from the other side of the world <pause dur="0.5"/> and once you've got the part <pause dur="0.3"/> you've then got to get an engineer <pause dur="0.2"/> who knows how to fit it <pause dur="0.3"/> to this <pause dur="0.2"/> highly sophisticated piece of <pause dur="0.3"/> # of equipment <pause dur="0.4"/> and so on <pause dur="1.0"/> so <pause dur="0.5"/> the most appropriate technology for a developing country <pause dur="0.3"/> may be <pause dur="0.3"/> # an older fashion if you like <pause dur="0.5"/> # more labour intensive <pause dur="0.5"/> # more robust <pause dur="0.2"/> piece of machinery <pause dur="0.4"/> rather than a highly sophisticated piece <pause dur="0.3"/> of computer

<gap reason="break in recording" extent="uncertain"/><u who="nm1122" trans="pause"> if you want to produce <pause dur="0.3"/> a particular product <pause dur="1.2"/> given its price and non-price characteristics all right <pause dur="0.6"/> there may be no choice of technique <pause dur="0.7"/> okay <pause dur="0.6"/> so the smooth isoquant that we draw <pause dur="0.2"/> in economics <pause dur="0.4"/> # of # variations <pause dur="0.4"/> in capital and labour inputs for any <pause dur="0.2"/> given level of output <pause dur="0.6"/> # may not exist <pause dur="0.3"/> mm the point you've just made <pause dur="0.4"/> to produce <pause dur="0.2"/> that design of garment <pause dur="0.3"/> for the fashion house in Paris <pause dur="0.4"/> selling at international market in particular <pause dur="0.6"/> you may have to produce <pause dur="0.4"/> you they you may have to use <pause dur="0.2"/> the best practice technology of the western engineer <pause dur="2.0"/> even if that's not true <pause dur="1.1"/> it it may also be the case that transnational corporations <pause dur="0.5"/> # <pause dur="0.8"/> have engineers <pause dur="0.3"/> who have experience <pause dur="0.4"/> in production conditions throughout the world <pause dur="0.3"/> mm <pause dur="0.6"/> so that for a few years they might have been working <pause dur="0.4"/> # say in Russia or Kazakhstan or

wherever it happens to be or Poland <pause dur="0.5"/> # then few more years they're down in Brazil <pause dur="0.3"/> # <pause dur="0.4"/> then they're off to India <pause dur="0.3"/> mm <pause dur="1.1"/> in the course of that <pause dur="0.7"/> experience of working under different economic conditions in different production environments <pause dur="0.5"/> they will have amassed <pause dur="0.4"/> # a tremendous amount of knowledge <pause dur="0.3"/> which is not codified in books <pause dur="0.4"/> # or into <pause dur="0.3"/> # manuals all right <pause dur="0.4"/> # <pause dur="0.2"/> it's <pause dur="0.2"/> it's embodied in them as highly sophisticated <pause dur="0.4"/> very experienced <pause dur="0.3"/> highly trained engineers <pause dur="0.6"/> and so when they go into Africa <pause dur="0.3"/> or into a new environment <pause dur="0.4"/> # they bring with them all that experience and expertise <pause dur="0.5"/> and so <pause dur="0.2"/> they can solve problems <pause dur="0.5"/> which <pause dur="0.2"/> maybe a local engineer couldn't do because they don't have this breadth of experience <pause dur="0.6"/> # they can increase the efficiency of existing production <pause dur="0.5"/> because they know how you can <pause dur="0.2"/> # deal with these problems <pause dur="0.3"/> they know how you can back up systems <pause dur="0.3"/> so that # you can quickly <pause dur="0.2"/> # <pause dur="0.3"/> # deal with problems particularly breakdowns you know breakdowns of production <pause dur="0.3"/> in developing countries are

are a are a continual problem <pause dur="0.3"/> mm <pause dur="0.6"/> if you've got people there that know how to fix it <pause dur="0.7"/> when the electricity supply fails when the machines fail <pause dur="0.5"/> # <pause dur="0.2"/> when something goes wrong with a production process <pause dur="0.3"/> those people are invaluable <pause dur="0.7"/> # and maybe the training which they get and the experience <pause dur="0.5"/> which engineers get working for transnational corporations <pause dur="0.3"/> is another invaluable asset <pause dur="0.3"/> far from being the # <pause dur="0.2"/> # # bringing it # <pause dur="0.2"/> # the inappropriate technologies <pause dur="1.4"/> they may well be able on the contrary to adapt <pause dur="0.3"/> technologies <pause dur="0.5"/> and use local technologies <pause dur="0.5"/> # more efficently <pause dur="0.7"/> than local <pause dur="0.3"/> # less experienced engineers <pause dur="0.4"/> so <pause dur="0.3"/> you know <pause dur="0.9"/> the idea that it's inappropriate technology shouldn't be <pause dur="0.2"/> # automatically assumed <pause dur="0.4"/> there may be no choice of techniques of production <pause dur="0.8"/> or indeed <pause dur="0.2"/> they may be more flexible in their choice of techniques of production <pause dur="1.1"/> it's a it's an empirical question <pause dur="5.5"/> another cost <pause dur="0.2"/> is extracting concessions from governments <pause dur="1.9"/> again we're dealing with highly sophisticated companies

here they're usually <pause dur="0.4"/> dealing <pause dur="0.3"/> with governments <pause dur="0.3"/> throughout the world <pause dur="0.7"/> they have teams of accountants and lawyers and negotiators <pause dur="0.5"/> who are very experienced very sophisticated <pause dur="0.4"/> # # negotiators <pause dur="0.4"/> coming up against <pause dur="0.4"/> # civil servants <pause dur="0.3"/> and # <pause dur="0.2"/> # politicians <pause dur="0.2"/> in <pause dur="0.2"/> # developing countries <pause dur="0.2"/> who simply don't have that breadth of experience and expertise <pause dur="1.2"/> also transnationals are very good at playing off <pause dur="0.5"/> one country against another <pause dur="0.3"/> mm <pause dur="0.7"/> # and that's a game that they've been playing ever since they <pause dur="0.6"/> started doing <pause dur="0.5"/> this # you know <pause dur="0.2"/> twenty thirty years ago <pause dur="0.8"/> i mean a recent example i guess would be in Britain <pause dur="0.4"/> where B-M-W <pause dur="0.3"/> # said well you know if you if the government doesn't give us so many <pause dur="0.2"/> whatever it was hundred millions pounds <pause dur="0.5"/> # <pause dur="0.5"/> then we'll close the Rover works <pause dur="0.4"/> and we'll move production to Hungary <pause dur="0.2"/> mm <pause dur="0.6"/> # <pause dur="0.2"/> you know nobody's it was quite open in saying that <pause dur="0.4"/> # the European Commission are now saying <pause dur="0.4"/> # <pause dur="0.2"/> you know that's absolute rubbish # B-M-W had no

intention of moving production to to Hungary <pause dur="0.3"/> they had no plans to do so it wasn't viable <pause dur="0.3"/> and it's causing problems in terms <pause dur="0.4"/> of # the subsidy which the British government have had given B-M-W <pause dur="0.6"/> but it's an example <pause dur="0.6"/> how how <pause dur="0.3"/> # a transnational corporation even dealing with a sophisticated government <pause dur="0.5"/> # and sophisticated officials that you would find in in in Britain <pause dur="0.5"/> can still use that argument <pause dur="0.4"/> if you don't give us concessions <pause dur="0.3"/> we'll go somewhere else <pause dur="0.8"/> # if you do give us the concessions <pause dur="0.3"/> we'll put in our money our expertise <pause dur="0.4"/> and <pause dur="0.2"/> you won't have <pause dur="0.3"/> # in the case of <pause dur="0.6"/> the Rover works you won't have the closure of the works with all the unemployment that's going to give rise to <pause dur="0.3"/> and loss of votes and <pause dur="0.2"/> # other things that politicians <pause dur="0.4"/> terribly concerned about <pause dur="0.4"/> # <pause dur="0.8"/> # in the case of a developing country <pause dur="0.3"/> you know if you don't give us the concession if you don't <pause dur="0.4"/> exempt us from tax <pause dur="0.3"/> all right paying taxes <pause dur="0.6"/> if you don't build us advance factories <pause dur="0.6"/> if you don't build roads for us <pause dur="0.7"/> # if you don't lay in <pause dur="0.3"/> # the all

the all the public services at zero cost <pause dur="0.6"/> if you don't give us special prices for the electricity that we need <pause dur="0.4"/> or the various other services that we need <pause dur="0.5"/> then we'll go to some other country 'cause they'll do it China will do it Brazil will do it <pause dur="0.2"/> mm <pause dur="0.5"/> so you've got to do it do you've got to do something better than that <pause dur="0.3"/> mm <pause dur="0.9"/> and you play off one country against another <pause dur="1.4"/> the U-N Centre on Transnational Corporations <pause dur="0.8"/> tries to act as a clearing house <pause dur="0.8"/> # to alter the bargaining <pause dur="0.5"/> # or or the strength of bargaining <pause dur="0.4"/> between <pause dur="0.2"/> # developing countries <pause dur="0.3"/> and transnational corporations <pause dur="0.6"/> by trying to in a sense call the bluff <pause dur="0.4"/> of the transnational <pause dur="0.6"/> # trying to get developing countries particularly in a region <pause dur="0.6"/> not to engage <pause dur="0.6"/> in this <pause dur="0.2"/> # zero sum gain <pause dur="0.2"/> mm <pause dur="0.4"/> to <trunc>st</trunc> all of them to stick together and say <pause dur="0.6"/> these are our tax rates <pause dur="0.3"/> you've got to pay the local rate for the electricity supplies <pause dur="0.4"/> if you want these special facilities you've got to pay for them <pause dur="0.2"/> and we're all going to stick by that <pause dur="0.6"/> and the U-N Centre on Transnationals <pause dur="0.3"/>

tries to get <pause dur="0.2"/> countries <pause dur="0.2"/> to cooperate in that way <pause dur="0.4"/> rather than <pause dur="0.2"/> this zero sum gain <pause dur="0.3"/> # of playing one off against another <pause dur="0.6"/> but i have to say it's not terribly effective <pause dur="0.4"/> they're too desperate to get them in <pause dur="3.0"/> # <pause dur="1.5"/><kinesic desc="changes transparency" iterated="y" dur="15"/> other possibilities # <pause dur="1.3"/> a possible conflict <pause dur="0.2"/> of objectives <pause dur="1.5"/> # <pause dur="1.7"/> between the global objectives of the multinational <pause dur="1.3"/> and the objectives of the of the host country <pause dur="0.9"/> i mean <pause dur="0.2"/> there's bound to be that conflict <pause dur="0.4"/> to a much greater extent <pause dur="0.3"/> than if you're dealing with <pause dur="0.3"/> a a local producer <pause dur="0.7"/> 'cause they're concerned with <pause dur="0.2"/> going back to what we were saying right at the beginning <pause dur="0.2"/> they're global sourcing of supplies <pause dur="0.3"/> they're selling in global markets <pause dur="0.3"/> they're maximizing the global profits of the group <pause dur="0.3"/> mm <pause dur="0.6"/> # <pause dur="0.9"/> and # <pause dur="0.6"/> whereas a local producer <pause dur="0.2"/> will have a more limited framework <pause dur="0.3"/> in which they're maximizing their <pause dur="0.5"/> their their profits <pause dur="0.9"/> and that leads to the <pause dur="0.2"/> next point in particular <pause dur="0.4"/> people allege <pause dur="0.3"/> that <pause dur="0.4"/> transnational corporations <pause dur="0.2"/> are footloose <pause dur="0.6"/> now by footloose <pause dur="0.3"/> they mean <pause dur="0.2"/> they're here today <pause dur="0.2"/> and they're gone tomorrow <pause dur="0.3"/>

all right <pause dur="0.5"/> # you know you set up your assembly plant <pause dur="0.6"/> # <pause dur="0.6"/> for <pause dur="0.4"/> # # <pause dur="0.2"/> say in Malaysia <pause dur="0.7"/> # for assembling electronic goods <pause dur="0.4"/> # whatever it happens to be <pause dur="1.1"/> but then Malaysia begins to develop and real wages rise <pause dur="0.6"/> and so you pack up shop and you go off to China <pause dur="0.4"/> because China's now got a much more open door policy <pause dur="0.2"/> and wage rates are a third those in Malaysia mm <pause dur="0.7"/> # <pause dur="0.2"/> and in when wage rates rise in in China <pause dur="0.2"/> well you go off to Africa okay <pause dur="0.3"/> so <pause dur="0.2"/> # footloose then <pause dur="0.6"/> because they're transnational corporations <pause dur="0.4"/> they have <pause dur="0.3"/> complete knowledge <pause dur="0.5"/> of where exactly <pause dur="0.5"/> is <pause dur="0.4"/> the most efficient <pause dur="0.2"/> and the cheapest <pause dur="0.4"/> # location <pause dur="0.2"/> for their production <pause dur="0.3"/> mm <pause dur="0.5"/> and they can utilize this information <pause dur="0.3"/> to switch production from one country to another <pause dur="0.7"/> footloose <pause dur="2.2"/> # <pause dur="1.4"/> you have to have be a little careful with that argument <pause dur="1.0"/> because it assumes that the costs <pause dur="0.4"/> of <pause dur="0.6"/> being here today and gone tomorrow <pause dur="0.4"/> are virtually zero <pause dur="0.5"/> and that's never the case <pause dur="0.8"/> when a transnational is deciding <pause dur="0.2"/> when it will locate production <pause dur="0.8"/> they will invest a lot of resources <pause dur="0.9"/> in <pause dur="0.6"/>

looking at alternative locations <pause dur="0.7"/> what are the costs and benefits <pause dur="0.3"/> of locating in Sri Lanka as opposed to in Southern India <pause dur="0.2"/> as opposed to Mauritius <pause dur="0.3"/> et cetera okay <pause dur="0.4"/> and they'll be looking obviously <pause dur="0.2"/> at the local resources that are available <pause dur="0.2"/> the tax system <pause dur="0.5"/> but also the political situation how politically stable are the countries <pause dur="0.5"/> # what are their regulations governing repatriation of profits <pause dur="0.4"/> is there a possibility of nationalization <pause dur="0.4"/> all sorts of factors come in <pause dur="0.4"/> before they actually locate in a country <pause dur="0.8"/> so there's a <pause dur="0.2"/> a quite a considerable investment <pause dur="0.6"/> in setting up <pause dur="0.4"/> even a a a simple assembly operation <pause dur="0.5"/> in a developing country <pause dur="0.4"/> it's not costless <pause dur="1.0"/> having invested <pause dur="0.5"/> that time and energy and resources <pause dur="0.6"/> # they're not going to suddenly just pack up and go away tomorrow <pause dur="0.4"/> mm <pause dur="0.4"/> 'cause they'll have to repeat the exercise all over again for some other country <pause dur="0.9"/> so what tends to happen <pause dur="0.6"/> is that having located in a developing country <pause dur="0.5"/> they will remain there <pause dur="0.5"/> mm <pause dur="0.8"/> unless things get <pause dur="0.2"/> very bad or <pause dur="0.3"/> # <pause dur="0.5"/> #

wage rates really go through the roof in which case <pause dur="0.3"/> they'll want to move somewhere else <pause dur="0.5"/> but the big decision <pause dur="0.3"/> really is <pause dur="0.6"/> do we expand production <pause dur="0.8"/> say in Malaysia <pause dur="0.3"/> okay in the electronics <unclear>theme</unclear> <pause dur="0.4"/> or do we set up <pause dur="0.2"/> a new plant in China <pause dur="0.7"/> it's the marginal decision like that <pause dur="0.5"/> which transnationals make <pause dur="0.6"/> rather than the absolute decision of closing one factory here <pause dur="0.5"/> and <pause dur="0.3"/> # relocating it to another country <pause dur="1.3"/> so it's more a case of <pause dur="0.2"/> where do we expand production do we use our existing <pause dur="0.3"/> # facilities <pause dur="0.2"/> in particular developing countries <pause dur="0.3"/> or do we go into a new situation <pause dur="0.6"/> what's the costs of uncertainty <pause dur="0.6"/> of of of moving into a new <pause dur="0.3"/> country and into a new situation <pause dur="1.3"/> so provided the experience then the initial experience <pause dur="0.6"/> # of setting up <pause dur="0.6"/> in the developing country <pause dur="0.5"/> # proves to be <pause dur="0.4"/> # <pause dur="0.2"/> profitable and worthwhile <pause dur="0.3"/> # venture <pause dur="0.3"/> they'll tend to stay there <pause dur="0.3"/> mm at least for some considerable period of time <pause dur="4.8"/> indeed there is some evidence to show that as real if the if the initial experience <pause dur="0.2"/> is a <pause dur="0.2"/> is a profitable

one <pause dur="0.8"/> as real wages rise <pause dur="1.1"/> so instead of closing down the factory and moving somewhere else <pause dur="0.2"/> they'll change the nature of the production <pause dur="0.6"/> they'll they'll they'll move upmarket into higher value added operations <pause dur="0.4"/> so you might start with simple assembly operations <pause dur="0.8"/> but as the <pause dur="0.5"/> developing country the host developing country <pause dur="0.3"/> becomes more developed <pause dur="0.6"/> # <pause dur="0.4"/> a greater pool of skilled labour <pause dur="0.8"/> # higher levels of education and the rest <pause dur="0.5"/> so they'll move into higher value added operations <pause dur="0.2"/> rather than close the factory down <pause dur="1.0"/> # that's certainly what's happened <pause dur="0.4"/> in the newly industrialized countries <pause dur="0.4"/> # of South Korea Taiwan <pause dur="0.5"/> # <pause dur="0.7"/> but also in the next wave of NIX Malaysia <pause dur="0.3"/> # Thailand <pause dur="0.4"/> # and in Latin American countries <pause dur="1.1"/> so the reaction to rising real wages is not to close the factory <pause dur="0.8"/> generally speaking <pause dur="0.9"/> but rather to move into as i say higher value added operations <pause dur="0.7"/> but obviously again it's an empirical question <pause dur="4.1"/> loss of sovereignty <pause dur="2.5"/> # well that's really follows from what i've just been saying just now <pause dur="0.5"/>

# <pause dur="0.2"/> in terms of the ability <pause dur="0.2"/> of a post-<pause dur="0.3"/>government <pause dur="0.3"/> to allocate resources <pause dur="0.3"/> # within its economy <pause dur="0.6"/> that's in in the economic sense of the term <pause dur="0.5"/> # # loss of sovereignty <pause dur="0.9"/> but it also could be more general <pause dur="0.4"/> in the sense that <pause dur="0.2"/> the multinational <pause dur="0.8"/> can be a terribly <trunc>ins</trunc> important source <pause dur="0.4"/> of employment <pause dur="0.6"/> government earnings <pause dur="0.5"/> # <pause dur="0.3"/> in the small developing country <pause dur="0.4"/> okay <pause dur="0.5"/> and so it can exert political influence <pause dur="0.4"/> as well as economic influence <pause dur="1.6"/> the multinational may well be able to influence government policy in general <pause dur="1.3"/> # for example they may influence <pause dur="0.4"/> be a strong influence <pause dur="0.5"/> for liberalizing <pause dur="0.2"/> trade policy <pause dur="1.0"/> mm <pause dur="0.4"/> so that they can <pause dur="0.2"/> import goods <pause dur="0.3"/> # free of tariffs and duties and other restrictions <pause dur="0.7"/> they may put pressure on post-governments <pause dur="0.3"/> to liberalize the capital account <pause dur="0.5"/> of the balance of payments <pause dur="0.5"/> so that they can move capital and earnings and profits <pause dur="0.4"/> in and out of the country <pause dur="0.3"/> # more freely than they <pause dur="0.4"/> # can at the moment <pause dur="0.9"/> they can exert influence on tax policies <pause dur="0.4"/> on labour <pause dur="0.2"/> and social and environmental legislation <pause dur="1.2"/>

in terms of their own objectives <pause dur="1.2"/> in that sense then <pause dur="0.5"/> there can be a loss of sovereignty <pause dur="0.6"/> # as well as <pause dur="0.2"/> # the narrower <pause dur="0.7"/> aspect <pause dur="0.5"/> of <pause dur="0.5"/> you know threatening to pull out if you <pause dur="0.5"/> # if you don't do such and such <pause dur="3.4"/> and the final one i've list there # <pause dur="0.8"/> little phrase by a Latin American economist <pause dur="0.5"/> # Osvaldo Sunkel <pause dur="0.8"/> # <pause dur="0.7"/> there's the # dependence <distinct lang="es">dependencia</distinct> school <pause dur="0.4"/> # <pause dur="0.4"/> in # in # Latin America <pause dur="0.6"/> which paints as you would imagine a pretty <shift feature="voice" new="laugh"/> critical view <pause dur="0.2"/> <shift feature="voice" new="normal"/> about multinationals and they're thinking of course about the activities of American multinationals <pause dur="0.4"/> in Latin America <pause dur="0.8"/> # <pause dur="0.5"/> and Sunkel <pause dur="0.6"/> has this interesting phrase which i've put there <pause dur="0.5"/> # which is <pause dur="0.3"/> international integration <pause dur="0.3"/> and national disintegration <pause dur="1.9"/> what he had in mind <pause dur="0.3"/> is that <pause dur="0.6"/> the <pause dur="0.6"/> # <pause dur="0.9"/> the multinational companies <pause dur="0.5"/> of <pause dur="0.4"/> the nineteenth century <pause dur="0.2"/> and early twentieth century <pause dur="0.2"/> in Latin America <pause dur="1.1"/> which were very often British companies <pause dur="1.2"/> # <pause dur="0.6"/> would be involved in building railways for example in developing port facilities <pause dur="0.5"/> # <pause dur="0.6"/> in developing

the markets in these countries <pause dur="0.6"/> and not simply British investment but there was a lot of British investment particularly <pause dur="0.5"/> # from the sort of eighteen-eighties <pause dur="0.4"/> # into the early part of the <pause dur="0.3"/> # <pause dur="0.4"/> of the nineteen-hundreds <pause dur="1.2"/> and Sunkel says <pause dur="0.3"/> this form of activity <pause dur="0.8"/> by <pause dur="0.2"/> these foreign companies <pause dur="0.4"/> # led to national integration <pause dur="0.3"/> right <pause dur="0.2"/> bulding railways obviously helps to integrate the whole economy <pause dur="0.3"/> in a way that hadn't been possible before <pause dur="0.6"/> and <pause dur="0.3"/> that was beneficial to the country <pause dur="0.7"/> and he contrast those activities <pause dur="0.5"/> with modern <pause dur="0.4"/> # transnational corporations <pause dur="0.4"/> they're not at all concerned <pause dur="0.4"/> with <pause dur="0.2"/> except in very large markets like Brazil or China <pause dur="0.5"/> # with the national market <pause dur="0.2"/> all right <pause dur="0.5"/> it's it's what what they're concerned with <pause dur="0.2"/> is international production <pause dur="0.4"/> okay <pause dur="1.2"/> # <pause dur="0.2"/> so that's the the international integration <pause dur="0.3"/> mm <pause dur="0.5"/> but it also leads to national disintegration <pause dur="0.3"/> in Sunkel's <pause dur="0.3"/> # terms <pause dur="0.6"/> because you create these enclaves <pause dur="0.2"/> these foreign enclaves <pause dur="0.2"/> mm <pause dur="0.6"/> these privileged elites the <sic corr="privileged">priviresed</sic> <trunc>e</trunc> elites <pause dur="0.3"/>

work for the transnational corporation <pause dur="0.3"/> okay <pause dur="0.4"/> # <pause dur="0.3"/> at all levels <pause dur="0.5"/> # <pause dur="0.2"/> # the foreign companies <pause dur="0.3"/> will pay substantially more <pause dur="0.4"/> than the <pause dur="0.2"/> average wage rate that you find <pause dur="0.2"/> in the local economy <pause dur="0.4"/> whether it's for unskilled labour or skilled labour or professional workers <pause dur="1.1"/> the the transnational corporation always pays a premium <pause dur="0.4"/> and it offers <pause dur="0.3"/> very nice working conditions <pause dur="0.5"/> and there may be <pause dur="0.2"/> other benefits health benefits education benefits <pause dur="0.6"/> pensions schemes even <pause dur="0.6"/> totally unknown in developing countries <pause dur="0.5"/> # so there's all these benefits that you get for working for <pause dur="0.3"/> # a transnational corporation<pause dur="0.6"/> # so you become a privileged elite <pause dur="0.5"/> mm <pause dur="0.5"/> and <pause dur="0.3"/> those that are associated with the transnational corporation at a political level <pause dur="0.5"/> or the firms supplying them <pause dur="0.3"/> become part of their elite <pause dur="0.5"/> but it's a foreign enclave <pause dur="0.4"/> it's the values of the transnational <pause dur="0.6"/> # <pause dur="0.3"/> which <pause dur="0.2"/> # you sell yourself for if you like <pause dur="0.2"/> according to Sunkel's view <pause dur="0.6"/> and these elites <pause dur="0.3"/> then distance themselves from the mass of people <pause dur="0.5"/> # <pause dur="0.6"/> almost look down

their noses at them <pause dur="0.2"/> all right <pause dur="0.3"/> # at the poorer people <pause dur="0.5"/> # <pause dur="0.2"/> who <pause dur="0.2"/> # are not part of this <pause dur="0.2"/> privileged <pause dur="0.2"/> foreign enclave <pause dur="1.0"/> so that's what Sunkel has in mind then as as as a cost <pause dur="0.4"/> he sees the modern transnational <pause dur="0.5"/> as # as he puts it here <pause dur="0.3"/> # <pause dur="0.3"/> leading to international integration <pause dur="0.2"/> but national disintegration <pause dur="0.7"/> well <pause dur="0.2"/> i just throw that out <pause dur="0.3"/> as a as as another broader perspective <pause dur="0.5"/> than perhaps the more narrower one that we look on as economists <pause dur="1.7"/> well i'll stop at that point <pause dur="0.5"/> # <pause dur="1.2"/> obviously what i want you to think of <pause dur="0.5"/> is going through these costs and benefits and the activities of and and the <pause dur="0.7"/> # and the competitive advantage of multinationals <pause dur="0.3"/> is ultimately an empirical question <pause dur="0.6"/> okay <pause dur="0.5"/> that's really what i want you to go away with <pause dur="1.4"/> rather than that multinationals <pause dur="0.3"/> are the salvation of developing countries <pause dur="0.4"/> which perhaps is what the World Bank <pause dur="0.4"/> # would <pause dur="0.6"/> tend to suggest <pause dur="1.0"/> or <pause dur="0.5"/> maybe Sunkel's view <pause dur="0.6"/> that they lead to national disintegration and you shouldn't have anything to do with them <pause dur="0.4"/> mm <pause dur="0.8"/> # <pause dur="0.2"/> they're

the sort of two extremes of the spectrum <pause dur="0.6"/> okay <pause dur="0.3"/> what i want you to do as economists <pause dur="0.4"/> is the usual <pause dur="0.7"/> # objective <pause dur="1.0"/> cost-benefit approach of course there'll be cost <pause dur="0.3"/> but there there there are also potential benefits <pause dur="0.6"/> # <pause dur="0.4"/> and looking at what the determinants of those costs and benefits are likely to be <pause dur="0.3"/> in any particular situation <pause dur="0.9"/> and therefore <pause dur="0.2"/> what you would also look for in the empirical evidence what what would be <pause dur="0.3"/> the sort of testable hypotheses <pause dur="0.5"/> that you would put up <pause dur="0.4"/> if you were looking at <pause dur="0.5"/> whether <pause dur="0.3"/> # the activities of <pause dur="0.3"/> # transnationals or particular transnationals <pause dur="0.5"/> in a developing country what were those effects <pause dur="0.2"/> likely to be what would be the hypothesis that you would set up <pause dur="0.5"/> in order to test <pause dur="0.3"/> whether net <pause dur="0.6"/> # they were a benefit or a cost <pause dur="0.6"/> to the host developing country <pause dur="1.5"/> and what i've given you there <pause dur="0.2"/> are <pause dur="0.5"/> key aspects look at the activities of of transnationals <pause dur="0.5"/> look at linkages with the local economy <pause dur="0.5"/> and apply them to the examples that i've given you over the page there <pause dur="0.5"/> if you'd like to think about that <pause dur="0.5"/> and then <pause dur="0.3"/> # we'll have a look at that next week <pause dur="1.4"/> any